Home loan borrowing costs inched modestly higher today. Best-Execution mortgage rates didn't budge.
As noted on several occasions, the broader bond market has generally moved sideways inside a well-defined, yet wide range this year. There have been periods of volatility, but on the whole, directional trends haven't lasted long without a return to the middle of the recent rage. This is why 4.875% has generally prevailed as the conventional Best-Execution 30-year fixed mortgage rate.
The risks associated with this range go back to the concept of "stored energy" in the bond market. Think of it this way: the longer the market stays in limbo, the faster rates will travel when the levee breaks and stored energy is released. That means if you are floating when stored energy is released, you are running the risk of losing your current quote.
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 4.125%. Five year ARMS are best priced at 3.50%.
PREVIOUS GUIDANCE: The longer we go without getting a clear sense of market direction, the higher the risks involved in floating. It's not that a longer waiting period automatically pressures rates higher, it just means the longer rates stay sideways, the more energy they store for their next movement up OR down. Considering that the costs for a 5% loan (for example) have only been lower a few days this year (see last week's CHART OF CLOSING COSTS broken down by available rates), our guidance is unchanged: 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. 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: Even though borrowing costs moved more than average today, we're still in a sideways range. The longer we go without getting a clear sense of market direction, the higher the risks involved in floating. It's not that a longer waiting period automatically pressures rates higher, it just means the longer rates stay sideways, the more energy they store for their next movement up OR down. Our guidance is unchanged: 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. 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.
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 bond 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 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.