Home loan borrowing costs rose about as much as they could today without having it negatively impact CURRENT MARKET Best-Execution Mortgage Rate quotes.
That means if you were being quoted a CURRENT MARKET "Best Execution" note rate yesterday, your closing costs rose a bunch today, but you should still be able to close at the same Best Execution note rate. Except if you're watching 15 year BestEx quotes. Those rose to 3.875%.
Sounds a little shocking doesn't it? It seems like just last week we were resting peacefully at new year-to-date lows. Now all of a sudden there's chaos?
Yep. The abrupt spike in costs can be attributed to volatility in the secondary market.....
PREVIOUS GUIDANCE: As volatility continues in the secondary market, we remind rate watchers that lenders are known to price loans from a defensive stance when the broader bond market is in limbo. It might seem safer to float when lenders are defensive by default, especially if you're able to act quickly and are somewhat flexible with respect to the risk of slightly higher closing costs, but floating is really best reserved for those operating on a longer-term timeline. This creates a buffer to allow for corrections when/if the market moves in an unfavorable direction. While a few sessions of continued loan pricing rallies could lead to a lower overall note rate offer, we've been here before (as recently as Friday) and failed to see investors commit to a sustained rally in the bond market (today).
CURRENT GUIDANCE: Although today's beating doesn't break longer term positive trends, it was certainly painful enough to make us question the stability of those positive trends. We'd describe this back-up as a "breather". Beware though, it's not uncommon for these "breathers" to last a few weeks.
CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate is just barely 4.50%. Lenders quoting 4.375% are now charging at least a point for that offer. These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs. 4.625% is aggressive and will likely carry no origination fees. On FHA/VA 30 year fixed "Best Execution" is still 4.25%. 15 year fixed conventional loans are now 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.
EXTRA PERSPECTIVE: We've been here before. Quite recently. Remember? Something similar to this "event" played out two-weeks ago (June 14th). A few days after setting YTD rate lows, loan pricing decided to throw up on itself because mortgage rates failed to commit to a sustained rally (we called it pouting). This happened on a day when stocks managed to put together a healthy recovery rally, despite weak economic data (bond friendly data). Sounds a lot like today doesn't it? If you're not sure, the answer to that question is yes. What happened today was very similar to what happened two-weeks ago. And the market corrected shortly there-after. That provides some warmth after the beating we took place today but it doesn't mean the market will surely behave the same way it did two-weeks ago. Short-term floaters have much to lose too (gain in monthly payment), especially for higher loan amounts. We just set new YTD rate lows and now we're teetering on a shift higher in Best Execution Mortgage Rate quotes. Don't lose your current rate quote here. For long-term floaters, we're not ready to ring the alarm bell just yet.
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.