May 17, 2013
Mortgage rates moved higher at their fastest pace in two weeks, after having their best day in more than 6 weeks just yesterday. The net effect for rates is not good, leaving them at their highest levels of the week and very close to 2013 highs seen in early March. While 3.625% remains as the best-execution rate for conventional, 30yr fixed loans, the costs associated with that rate (or whatever rate you're considering) are as high as they've been all week. Further increases from here start to shift the balance toward 3.75%.
There's no question that the month of May has been exceptionally volatile for mortgage rates, in the context of the past 2 years anyway. Consider the "cost" side of the mortgage rate equation. Every rate has an associated cost implied. The lower the rate, the higher the cost. On average, those costs fluctuate each day by roughly .125% to .25% (this is percentage of loan balance, where .125% would equate to $125 for every $100,000 financed). Then consider that 6 out of the last 12 days have seen fluctuations of at lease .375% and 4 of those 6 have been over .5%! That means a $200,000 loan would cost $1000 more today vs yesterday, and that's happened 4 times so far this month, each time in opposite directions!
There are other factors that can affect your borrowing costs over time that bear consideration in coming weeks. One such consideration is the upcoming changes to mortgage insurance rules for FHA loans. Frequent contributor to Mortgage News Daily, Julian Hebron, wrote more in THIS ARTICLE on TheStreet.com:
"30-year fixed FHA loan borrowers with 10% down won't be eligible to cancel mortgage insurance for 11 years, and those with less than 10% down must pay mortgage insurance for the full 30-year term of their loan. To get through this red tape and obtain a case number before June 3, borrowers should apply with a lender no later than Friday, May 24."
-Julian Hebron, Branch Manager, RPM Mortgage
The broader volatility this week has had an effect on all loan types, and as we've said all week, this may continue to be the case until AFTER next week's FOMC Minutes, released on Wednesday afternoon. Markets are continually trying to adjust trading levels to align with what they believe the Minutes will reveal about the Fed's pace of bond buying. They'll be looking for clues as to how that pace can evolve in the coming months, and if they see something meaningful, we could see even bigger swings in rates before things settle down.
Loan Originator Perspectives
"Fridays haven't always been kind to MBS lately, and today was no exception. Mortgage bond prices dropped over .5% from yesterday's close on the heels of a strong consumer sentiment report. Would be nice to put together consecutive strong days in MBS, but that hasn't been the case for a while. Until we do, best to lock on first upward moves, this market isn't holding traction." -Ted Rood, Senior Originator, Wintrust Mortgage
"Like I said yesterday up and down and back again. To late to lock today so maybe the 180 will take place on Monday and get us back to where we were when we closed on Thursday." -Mike Owens, Partner, Horizon Financial Inc.
"Extremely volatile week. A couple rate locking opportunities Wednesday and especially Thursday, but otherwise rates generally rising. Good reminder to clients that holding for better when it's so volatile can be painful. Big even next week is release of May 1 FOMC minutes on Wednesday. That may confirm chatter about the Fed beginning to pump the brakes on QE, and if it does, we may see rates hold at these higher levels." - Julian Hebron, Branch Manager, RPM Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.625%, (3.75% not far from sharing the best-execution space)
- 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
- After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
- EU and domestic economic data remain relevant to mortgage rates, but uncertainty over the Fed's bond-buying plans through the rest of the year is causing volatility
- The further we've progressed into 2013, the faster the swings have become
- (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).