Although home loan borrowing costs improved slightly today, Best Execution mortgage rates remain in a holding pattern ahead of tomorrow's high-risk FOMC Statement (Fed Rate Decision). It's going to take a sustained effort, catalyzed by something like a bond-market-friendly reaction to tomorrow's announcement if Best Execution mortgage rates are to break their current barriers. We discussed those barriers in THIS POST.
The nice thing about the current situation is that while tomorrow's events present "high risk," they arrive while mortgage rates are near or below their very best levels in months, meaning that there's no reason to second guess locking if so inclined, yet still enough possibility of improvement for more aggressive or risk-tolerant outlooks.
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: The "holding pattern" continues, and borrowing costs are nearly as low as they can go without another shift in the Best-Execution rate. We've talked about why that is the case many times over the past four months (READ MORE). If you have the flexibility to wait until Thursday morning to see how rates fared after Wednesday's Fed Announcement, that's allowable even if it's not advisable due to the limited nature of potential gains. We say that because we do think it's possible the Fed signals a less optimistic outlook this week, which would be supportive of an improvement in Best Execution Mortgage Rates. 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. We are definitely in "wait and see" mode until then....
CURRENT GUIDANCE: If you have the flexibility to wait until Thursday morning to see how rates fared after tomorrow's Fed Announcement, that's allowable even if it's not advisable due to the limited nature of potential gains. We say that because we do think it's possible the Fed signals a less optimistic outlook this week, which would be supportive of an improvement in Best Execution Mortgage Rates. But just because it's POSSIBLE, doesn't mean it's LIKELY though. Things can go either way, and the secondary mortgage market is definitely showing its resistance to the idea of taking the conventional 30yr fixed Best-Execution rate below 4.875%. If you're in the market to remove risk from your scenario, now's a great time to favor locking. Conversely, if you're in the market for risk, it's also not insane to float for potential gains. Good times...
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.