Mortgage rates are on a three day winning streak!
Yes you read that correctly. After snapping a 5-day losing streak last Wednesday, loan pricing has improved in 3 straight trading sessions. Upon careful inspection, we are ready to update current market "best execution"....
UPDATED CURRENT MARKET*: The "Best Execution" conventional 30 year fixed mortgage rate is no longer split between 5.125% and 5.25%....it has fallen firmly to 5.125%. 5.00% quotes are available but borrowers should expect to be charged origination fees if they choose to permanently buydown their note rate. The upfront cost of permanently buying down your rate from 5.125% to 5.00% may not be worth it to every applicant. We would generally advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 5 years. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is 4.875%. 4.75% quotes are available but borrowers should expect to pay origination fees. 15 year fixed conventional loans are still best priced between 4.25% and 4.375%. Five year ARMS are best priced at 3.75%.
YESTERDAY'S GUIDANCE: Reprices for the better were reported today but were not significant enough to allow for an improvement in the "Best Execution" 30-year fixed mortgage rate. This is a positive development for fence sitters but not positive enough to support a change in guidance. Snowballing selling is still a risk, but you will have two or three days to make a lock decision if rates do start to tick higher again. Don't get comfortable. Pay extra close attention to the market because we're definitely still on a ledge.
NEW GUIDANCE: More of the same from yesterday. Reprices for the better were reported again today. Yes this is encouraging but we continue to caution fence-sitters. The 3-day winning streak is a positive development but is not a reason to get comfortable, "the ledge" is very much within reach. Negative technical momentum generated after the January Employment Situation Report has yet to be reversed. Because of that, sentiment in the secondary mortgage market still reflects a defensive bias toward further interest rate rallies. If rates do begin to rise again borrowers should approach their lock/float decision very carefully because snowball selling (the ledge) remains a big risk. Snowball selling in the secondary mortgage market forces lenders to reprice their rate sheets for the worse. At first the impact is only higher closing costs, but as the snowballing gains momentum and reprices for the worse get bigger and bigger...the "Best Execution" 30-year fixed mortgage rate spikes higher. LEARN MORE: WHY IS SNOWBALL SELLING BAD FOR MORTGAGE RATES?
What MUST be considered BEFORE one thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the secondary mortgage market.
"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 buydown 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 intense fiscal frisking that comes along with the underwriting process.
*The primary mortgage market is still very segmented at the moment because of a pending shift in the production mortgage-backed security coupon in the secondary mortgage market.