Home loan borrowing costs rose almost imperceptibly today, not nearly enough to affect the Best-Execution mortgage rate.
Loan pricing still seems to be in a holding pattern until next week when the market face a high-risk event: a Federal Reserve meeting. We'd expect this event to better dictate the direction of mortgage rates in the short-term.
CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875%. If you are looking to move down to 4.75%, this offer carries higher closing costs but could be worth it to applicants who plan on keeping their new mortgage outstanding for longer than the next 10 years. Some lenders are beginning to price loans more aggressively because competition is tight, so scattered sightings of 4.75% are possible, but not on a wide-spread basis. Ask your loan officer to run a break-even 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 at 4.25%. Five year ARMs are still seen best priced at 3.50% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario.
PREVIOUS GUIDANCE: We're looking at two distinct possibilities with respect to the near term lock vs. float outlook. Longer term outlooks can go ahead and punch out for the day as there's not yet a scary enough reason for inclined long-term floaters to jump ship. But for short-termers, today (in combination with yesterday) raises the possibility that recent improvements in rates are on hold until after next week's FOMC Announcement (Fed meeting). Past precedent suggests this is possible as markets have occasionally traded the days up to FOMC announcements by accounting for a certain "scary scenario." Particularly, bond markets may fear the Fed will indicate some sort of acceleration of rate hike prospects. The other possibility is that the announcement will contain no such "scary" indication, which suggests rates either return to current levels or improve. Risky business to bet on such things though. This recent introduction of potential weakness on a week where rates are near their best levels further increases the slight lock bias we've been presenting since 4.875% regained it's status as the dominant Best-Execution rate....which we know will be a hard barrier to break!
CURRENT GUIDANCE: Today's market movements did nothing to change the guidance we presented yesterday which suggested two possibilities. The first possibility is that that recent improvements in rates are on hold until after next week's FOMC Announcement (Fed meeting) as past precedent suggests that bond markets may fear the Fed will indicate some sort of acceleration of rate hike prospects, which would be negative for rates. The other possibility is that the announcement will contain no such "scary" indication, which suggests rates either return to current levels or improve. Either way, we view floating as risky given the uncertainty of that situation in combination with the fact that the 4.875% Best-Execution rate which we know will be a hard barrier to break. So although longer term, more flexible outlooks can still float in speculation of further gains, the upside is limited enough for shorter term outlooks to favor locking.
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?
"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 buy down 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.