Mortgage rates continue to benefit from a "flight to safety".
A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.
Conflict in Libya and the potential for a spillover into other oil producing countries has energy traders nervous about shrinking oil inventories. The chance for a supply/demand driven spike in energy prices is seen as a threat to the already sensitive U.S. economic recovery. Many economists believe rising energy costs would squeeze disposable income on Main Street and hurt consumer spending, which would slow the economic recovery. This "headline risk" had led stock prices lower and pushed money into safe haven assets like U.S. Treasuries.
The flight to safety continued in the bond market today. Treasury yields fell and mortgage-backed security prices rose as a result. This allowed lenders to reprice for the better. These loan pricing improvements were large enough to push the "Best Execution" 30-year fixed mortgage rate lower!
UPDATED CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate has fallen to 4.875%. For those looking to buy down their rate to 4.75%, this quote carries higher closing costs. The upfront cost of permanently buying down your rate to 4.75% is not worth it to many applicants. We would generally advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 10 years. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is still 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%, but 4.25% is more efficient in terms of the floatdown breakeven. Five year ARMS are best priced between at 3.625%.
PREVIOUS GUIDANCE: The market is certainly THINKING about shifting back into a more rate-friendly stance, but that remains up-in-the-air to a certain extent.
NEW GUIDANCE: No new guidance. The bond market is still in limbo in terms of an extension of the recent rally. Approach floating from a defensive posture, especially after Best Execution improved to 4.875% today because we think it's going to take a sustained rally in the bond market for Best Execution to improve to 4.75%. Remember what happened in January? Remember the expensive buydowns between 4.875% and 4.75% No?.....LEARN MORE.....Mortgage Rates: 4.875% is Best Execution. 4.75% Buydown is Expensive
What MUST be considered BEFORE one
thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the secondary mortgage market?
"Best Execution" is the most efficient combination of note rate offered and
points paid at closing. This note rate is determined based on the time it takes
to recover the points you paid at closing (discount) vs. the monthly savings of
permanently buying down your mortgage rate by 0.125%. When deciding on
whether or not to pay points, the borrower must have an idea of how long they
intend to keep their mortgage. For more info, ask you originator to explain the
findings of their "breakeven analysis" on your permanent rate buydown
Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the intense fiscal frisking that comes along with the underwriting process