Mortgage rates improved today as the situation in Japan deteriorated and a feeling of panic poured through global markets, spurring on another flight to safety in risk-averse government bonds.
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.
UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate HAS IMPROVED to 4.75%. This quote is not widespread though. If you are not seeing this rate, your lender should at least be sharing closing cost credits for 4.875% (see disclaimer below). For those looking to permanently buy down their rate to 4.625%, this quote carries expensive closing costs. The upfront fee to permanently buy down your rate to 4.625% is not worth it to every applicant. We would generally advise the permanent floatdown if you plan to keep your new mortgage outstanding 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" has improved to 4.625%. Some lucky borrowers may even see 4.50%, but those quotes are not widespread at all. They are actually "phantom". If your FHA rate is still 4.75%, your lender should be offering closing cost assistance. 15-year fixed conventional loans are best priced at 4.125%, but some lenders may be quoting 4.00%. Five year ARMS are still best priced at 3.50%.
PREVIOUS GUIDANCE: Although early trading seemed to suggest mortgage rates were in the process of becoming "UNSTUCK," an unfriendly correction ensued in the afternoon hours that led to losses which suggest bond markets are still not committed to a sustained rally. Yet. This leaves us very much on a fence. Our intermediate outlook is for lower rates but short term decision makers must consider that mortgage rates are as aggressive as they've been all year.
CURRENT GUIDANCE: The loan pricing buydown barrier has been broken, but the bond market hasn't committed to a sustained rally (NEED 4.0 MBS COUPONS). A "flight to safety" help us get here, that means mortgage rates are still at the mercy of headlines and a constant "flight to safety".
Plain and Simple: This move could be brief or it could be the start of a sustained interest rates rally. Wait and see....
"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 costs.
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.