After spending the first four months of 2011 in a tight range, we may be witnessing the early stages of a significant shift lower in home loan borrowing costs. But these signs are only the beginning of what might evolve into a sustained rally in the bond market. Nothing has been confirmed. Preliminary signs are encouraging, but could very well be a "false start".
UPDATED 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. More lenders, especially brokers, are pricing conventional loans aggressively because competition is tight in the primary mortgage market, so sightings of 4.75% BestEx are QUITE POSSIBLE, but not on a wide-spread basis yet. On FHA/VA 30 year fixed "Best Execution" has fallen from 4.75% to 4.50%. 15 year fixed conventional loans are best priced at 4.125%. 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: Without saying anything about the longer term possibilities, the short term outlook becomes much more lock-biased when borrowing costs are at or near their lowest levels and with a large gap lower to the next range of historical costs. As good as it gets? There's no way to know, but in terms of probability, seeing significant improvements in closing costs or rates is unlikely in the upcoming week. But the bottom line is really this: a few weeks ago, after the bond market began bouncing back from its worst recent levels, we shifted our guidance to allow for a bit more risk. Today is the opposite, we're decreasing our level of risk tolerance at these levels, but with the caveat that we continue entertain the possibility of further improvements in the longer run. If you think you can save more, better read the rules below...
CURRENT GUIDANCE: "Current Market" Best Execution quotes carry the most aggressive borrowing costs we've seen since early December. We're now witnessing the early signs of what might be a shift lower in mortgage rates but again, this is only the beginning of what could be an extended rally in the bond market, nothing has been confirmed though. If bond investors reverse their sentiments, the rate spike that follows could very well be violent. That may happen as soon as Friday morning when the monthly Employment Situation Report is released (high-risk event). If you're being offered a below "current market" quote, be extra defensive. Your main mission should be keeping it! If you are interested in learning more about the technical factors associated with a potential interest rates rally, we recommend reading this post as it provides pertinent perspectives and explains the situation in Plain and Simple terms. As always, if you want to benefit from another leg lower in Best Execution mortgage rates, you must read the rules.....
What MUST be considered BEFORE one thinks about capitalizing on a rates
1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?
*"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 fiscal frisking that comes along with the underwriting process.