Fence-sitting mortgage rate watchers were presented with an opportunity to lock their loan on Friday as lenders were offering the most aggressive loan pricing we've seen since early December. Of course the move to the low side of the recent range meant little to some bystanders who are patiently waiting for a return to the record low rates enjoyed in October/early November.
Today we failed to breakout of that range and mortgage rates moved higher. This is not a surprise when one considers the speed and extent in which borrowing costs spiked toward the end of 2010. Now bond investors are hesitant to push interest rates lower without confirmation that the December sell off was indeed exaggerated by holiday trading conditions and a year end profit taking.
We shared some perspective on the road ahead in this post: Mortgage Rates: Varying Degrees of Opportunity Presented
The "best execution" conventional 30 year fixed mortgage rate has risen back to 4.875% today. Lenders are still offering 4.75% but the upfront permanent buydown costs would take over 10 years to recover over the life of the loan. On FHA/VA 30 year fixed loans "best execution" is 4.75%. If you're shopping for a 15 year fixed mortgage rate, we see a sweet spot at 4.25%. On 5-year ARMs, we've heard of very well qualified borrowers being quoted rates as low as 3.50%.
Important Mortgage Rate Disclaimer: 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. Oh and we can't forget the intense fiscal frisking that comes as part of the underwriting process.
"Best Execution" is the most efficient combination of note rate 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 buydown costs.
The week ahead isn't necessarily jam-packed with new economic data but there are a few events to be aware of if you're floating. First, we get three reports on the health of housing. None are expected to indicate sustainable growth from record low levels of activity, but investors aren't necessarily focused on the "big picture" right now, meaning better than expected data could be enough cause for traders to push benchmark yields higher.
Beyond scheduled economic releases, global markets will be paying close attention on Wednesday to a meeting between Chinese President Hu Jintao and our own President Barack Obama. Reuters says their talks are expected to focus on a host of thorny issues, from rebalancing the global economy to dealing with North Korea and the value of the Yuan. Analysts are calling the visit the most important by a Chinese leader in 30 years given China's growing military and diplomatic influence and its emergence as the world's second largest economy after the United States.
Last but not least, the Q4 earnings season also picks up this week with results from Citigroup, US Bank, Goldman Sachs, Wells Fargo, Morgan Stanley, Bank of America, tech heavyweights IBM, Apple and Google, and economic bellwether General Electric. Expectations are high. Remember, positive economic data and market related events generally push mortgage rates higher.
FULL ECON AND EVENTS CALENDAR: The Week Ahead: Housing Data, Bank Earnings, U.S/Chinese Relations, Eurozone Crisis
Totally unrelated to economic release calendars and event schedules....
Mortgage borrowers need to be made aware of some internal policy shifts that are taking place within the industry right now. Starting on April 1, Fannie Mae and Freddie Mac will have increased their fees on certain loans. However because the underwriting and loan delivery process takes about 30 days, lenders are implementing these new costs now. Specifically, borrowing costs have increased on deals with "loan to values" over 75%. This applies to even the most creditworthy borrowers. It is totally based on the amount you wish to borrow relative to the value of your home. Ask your originator for more information on the increase in "loan level pricing adjustments". It will impact your borrowing costs. HERE are the new costs.