Home loan borrowing costs are still hovering near six-month lows but forward progress continues to be challenging. We've described the recent behavior of mortgage rates as "sideways" after running into "The Wall". This was the case once again today as there is no change to report in borrowing costs. Take a look at THIS CHART for a visual of how rates have hit "The Wall."
CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate remains a state of flux between 4.75% and 4.625%. Several lenders are currently quoting C30 loans at 4.625% with no origination points (see disclaimer below). If you are looking to move down from there, you'll be assessing the trade-offs between higher closing costs and lower monthly payments. This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs. On FHA/VA 30 year fixed "Best Execution" is also a moving target roughly centered on 4.375% with adjacent rates (even 4.25%) being logical in some scenarios. 4.50% is a no-brainer for most FHA 30yr fixed scenarios. 15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are best priced at 3.25% 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 rally has gone sideways, that skews risk unfavorably in the short term. This will continue to be the case until "The Wall" comes tumbling down or proves unbreakable. Borrowers with a 10-15 day lock/float timeline should be defensive of recent cost improvements, especially if lenders are quoting rates in the lower-side of our "Current Market" Best-Ex listing. Floating is still an option for borrowers who have a longer lock/float timeline as well intermediate-term scenarios. Stay tuned for further developments.
CURRENT GUIDANCE: There is still justification for floating if you have an intermediate to long-term scenario or a more aggressive/flexible stance and don't mind locking later, at a loss if "The Wall" proves unbreakable. But for short termers, the very existence of "The Wall" suggests locking is the smart decision, especially if you're on a 10-15 day timeline or are less flexible with respect to changes in closing costs or note rate. Additionally, if you're being quoted the lower of the two Best Execution rates mentioned above in the "current market" section, floating is even more risky as those rates can vanish in one bad day, whereas it would take several days of uncommonly good performance in bond markets to get you down to the next rung on the mortgage rate ladder.
What MUST be considered BEFORE one thinks about capitalizing on a
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 cost 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.