Home loan borrowing costs took a beating yesterday. The bond market's behavior was so unfriendly that Best Execution mortgage rates nearly shifted higher as a result. The main motivation behind this unfavorable directional display was a significant rally in stocks. Although this market event didn't break any long-term positive trends, it was certainly scary enough to make one question the strength of those positive trends. Fortunately that skeptical stress was relieved today. Stocks erased all of yesterday's gains and the bond market recovered all its losses. Lenders repriced rate sheets for the better and home loan borrowing costs corrected. Best Execution mortgage rates didn't rise. Bullet dodged!
CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.50%. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees. 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 4.25%. 15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% 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: No sooner has the wall been torn down than the big bad financial markets are trying to scare lenders into building it back up. Certainly, anything can happen, and while it's possible that rates move right back to the higher levels seen before "The Wall" came down, the current level of weakness is consistent with past examples of the "short-term corrections" we've warned against. The past few days provide an example of how quickly these corrections can happen and hopefully illustrate why we normally urge defensive stances even as rates improve. There's an exceptional amount of risk involved in banking on continuation of the longer term rally, but recent weakness in rates hasn't ruled it out. Still, short-term scenarios beware. It's not uncommon for these "breathers" to last a few weeks.
CURRENT GUIDANCE: Today's recovery rally is encouraging from a big picture perspective as it keeps the door open for our longer-term bullish mortgage rate bias to extend deeper into the summer months. Still, short-term scenarios should take caution. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. Hopefully these back-ups illustrate why we normally urge defensive short-term stances, even as rates improve. We may have dodged a bullet today, but we're not out of the woods yet. More bouts of volatility are very possible.
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you
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.