June 7, 2013
Mortgage rates rose today. They rose no more or less than any other "fairly bad" day in the history of mortgage rates, but at this particular point in history, they were already at 14-month highs and now they're at 15-month highs. This was a risk heading into today's jobs report and the fact that markets were well-prepared for it is evident in the pace of the move. In other words, it wasn't the same sort of panicked, fast-paced move we've seen on several occasions recently. It just happened to occur when our backs were already against the wall (or ceiling, as the case may be).
Today's weakness brings the best-execution rate more squarely into 4.125% territory, whereas it had been in transit between there and 4.0% yesterday and before. That said, the level of market volatility we've seen in May and early June tends to make a mess of lender pricing strategies, and on any given day, several of them do things quite differently than the rest of the pack. Some lenders still have reasonable costs for buying down rates below 4.125% depending on the scenario. In general, we wouldn't expect even the most flawless loan files to be seeing high 3% rates without origination/discount points up front.
Just remember that upfront costs are neither good nor bad--simply a choice to pay interest now or later. Regulators didn't seem to understand this when crafting compensations laws (and those laws may limit the flexibility of some loan originators with respect to the following information), but if you do, it can save you money in the long run, and offer peace of mind if you're concerned about rates continuing to rise in the long run.
If you start from a baseline rate and fee structure where you're not paying any origination or discount, the extra costs you choose to pay up front will result in lower payments. Over time, those savings will supersede the original up-front cost, resulting in a number of "break even months." For instance, at one popular lender today, it would take 88.5 months before you would recoup the costs associated with moving down from 4.125% to 4.0%. You'll have to decide what makes sense for you in that regard.
Loan Originator Perspectives
"So the scenario of a big miss or big beat on NFP didn't materialize and MBS still get hammered. I guess just enough jobs to keep up with population growth is the new normal to make markets think all is well. QE isn't going away anytime soon, but I wish they would end it next week cold turkey. That would really shock the system. Stocks would tank, rates would follow. " -Mike Owens, Partner, Horizon Financial Inc.
"MBS down again (what else is new?) on heels of merely average May jobs report. It doesn't take much to spark an MBS selloff these days, and 175,000 jobs created certainly did the trick. We're still above recent lows, but have seen robust selling resulting in higher rates. Glad we've been locking at application date, unlocked loans are seemingly losing ground daily!" -Ted Rood, Senior Originator, Wintrust Mortgage
"The march higher continues. Rates are now about .75% higher than record lows last touched mid-January (which, it's worth noting, was only for two days in January). That's the situation for conforming loans to $417,000. Jumbo loans above this amount are actually now lower than conforming loans. That's because the jumbo MBS market is more favorable. Either way, the theme for 2013 is a higher rates with volatility that allows for miscellaneous dips along the way." -Julian Hebron, Branch Manager, RPM Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.125%
- 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
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed confirmed their intention to taper bond buying programs sooner vs later
- Just as the pendulum pushed far to the positive side of the rate range in April, the opposite swing occurred in May (now the worst single month for rates on record since 2008)
- (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).