April 11, 2013
Mortgage rates finally moved lower today, after rising moderately during the first 3 days of the week. Today's changes are fairly small when viewed against the damage done since last Friday, but last Friday's rates were exceptional. While not quite as good as the offerings seen from last Thursday through this Wednesday, today's rates are still among the best of the year. It's interesting to note that the best and worst rates in 2013 are separated by only 0.25% (3.5-3.75%) with most days averaging 3.625%. The best execution (what is this?) for 30yr Fixed loans had begun edging up toward 3.625% yesterday after hitting 3.5% late last week, and today's improvement undoes some of that movement, keeping 3.5% in play.
With the recent fluctuations in rates--more importantly with the recent variations in what we refer to as the "best-execution" rate--it's a good opportunity to talk about exactly what is meant by the movement between 3.5% and 3.625%. Here are a few bullet-point truths that might help:
- Almost any lender will that has 3.625% as an available rate will also have 3.5%
- Except in extremely rare circumstances, as far as conventional loans are concerned, 3.5% will always "cost more" than 3.625%
- "Cost" refers either to the extra closing costs you'd pay or to the extra lender credit toward closing costs that you'd give up.
- We determine best-execution by identifying the best bang for the buck with respect to costs and rates
- Various aspects of a loan scenario can greatly affect where you're at on the interest rate continuum. What we discuss as 3.5% vs 3.625% may well be 3.625% to 3.75%.
- Where available, it almost always makes sense to find out how a different interest rate would effect your closing cost scenario and balance that against your personal preferences. If you're planning on staying in a home for a long time, you may prefer to pay more up front in exchange for a lower rate.
- In discussing 3.5% and 3.625% as "best-execution" rates, we're letting you know that there are diminishing returns incurring more up front cost to drop the rate lower than that (but don't let that dissuade you from examining what those costs would be! For instance, the costs to move lower by .125% increments are surprisingly level at many lenders (roughly 1% of the loan balance, perhaps closer to 0.9% near best execution and moving up to 1.1-1.2% as you near the lower limits of what lenders can offer.
Today's strength is surprisingly reassuring. Mortgage markets improved despite the balance of today's data and events suggesting weakness. That COULD speak to some innate level of resolve in holding ground here, but the major risk is that markets could simply be waiting for tomorrow morning's Retail Sales report as their next big guidance giver.
Loan Originator Perspectives
"Rates finally leveled off today. Conventional wisdom tells us that we should take these opportunities to lock rates when this happens, and it may be right! Thrill seekers may be modestly rewarded if tomorrow's data is bad, but bigger benefits require longer term floating, which is probably too much of a gamble at this point, given the overall trend in 2013." -Bob Van Gilder, Finance One Mortgage
"Nice to see a little reprieve in rates today. Don't sleep on these rate dips. That's proven painful this year, as I explained yesterday." -Julian Hebron, Branch Manager, RPM Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.5%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.75-2.875%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately but consistently since hitting their all-time lows in September and October 2012.
- Regardless of global or domestic economic weakness, the subsiding fear of a disorderly EU breakup will continue to prevent rates from getting back to those lows.
- This is very likely to be the case unless a similarly panic-inducing event were to come into focus, or if a disorderly break-up regained the spotlight.
- Sequestration, negative growth, and generally choppy political and economic environments around the world DO NOT constitute that sort of panic.
- This is a "rising rate environment" until further notice, though pockets of recovery and consolidation can provide smaller-scale opportunities against the larger-scale backdrop.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).