Home loan borrowing costs stayed sideways today after ending a 7-day losing streak on Wednesday. This is important because a high-risk event has just passed: The Employment Situation Report
To illustrate the recent behavior of mortgage rates, we offer the chart below. It graphs the average origination closing costs associated with specific mortgage note rates as quoted by the five major mortgage lenders. With respect to the notion of "stored energy" and the "sideways" movement, see how the individual dots that comprise each of the lines are now moving more sideways than up or down versus say, February and the first half of March for instance.
If the note rate line is moving up, the closing costs associated with that rate quote are rising. In December, closing costs rose rapidly. Mortgage rates did improve from those levels, but then moved sideways for 7-weeks. And then the range broke following the January Employment Situation Report and consumer rate quotes rose back to their December highs. As one can see, borrowing costs have steadily improved afterward before running into a wall near the lows of the year. Since then borrowing costs have slowly drifted higher...
Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW
NO CHANGE IN CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.875%. For those looking to permanently buy down their rate to 4.75%, this quote carries higher closing costs. The upfront fee to permanently buy down your rate to 4.75% is not worth it to every applicant, we would generally only 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" is 4.75%. 15 year fixed conventional loans are best priced at 4.25%. Five year ARMS are best priced at 3.50%.
PREVIOUS GUIDANCE: Even after this week's auction cycle has played out, the market is still giving off the impression that rates are "on a fence", ready to move either way after the Employment Situation Report tomorrow. As always, this is a high risk event. If you can't afford or don't want to take a risk, lock now. If you've got time, flexibility, or otherwise are not in any particular rush or pressing need to lock your loan, we still think it's possible that rates make one more run lower in the months ahead.
CURRENT GUIDANCE: It would have been convenient if the Employment Situation Report left markets with a renewed sense of purpose and momentum but unfortunately, we’ve only been offered more uncertainty (we say “more” because a traditionally influential piece of economic data failed to move the markets today). While that makes it harder to predict the future, it does little to change our guidance. If you've got time, flexibility, or otherwise are not in any particular rush or pressing need to lock your loan, we still think it's possible that rates make one more run lower in the months ahead. If you can't afford or don't want to take a risk, lock now because it might not get any better from CURRENT MARKET again. Can't wait to see what happens next week.
What MUST be considered BEFORE one thinks about capitalizing on a rates
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 bond market.
What's at risk?
A shift higher in "Best Execution" mortgage rates.
"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.