Home loan borrowing costs moved marginally higher this week. Fortunately these unfriendly developments did not negatively impact Current Market BestExection* quotes. Mortgage rates are still hovering just above their best levels of the year. Fear of the unknown has put lenders back on the defensive though. This is generally not a favorable market environment for rate watchers. The "path of least resistance" is tilted toward higher rates....
In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are on the rise. If the line is moving lower, costs are on the decline. More recently a sharp spike followed by an immediate recovery (last week) can be seen. And then consumer borrowing costs crept slightly higher this week. Overall, mortgage rates are still close to their lowest levels of the year.
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The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW
CURRENT MARKET*: The "BestExecution" conventional 30-year fixed mortgage rate is 4.625%. Some lenders are still offering 4.50%. On FHA/VA 30 year fixed "BestExecution" is 4.375% and in some cases 4.25%. Strong FHA quotes at 4.50% are widespread. 15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be "BestExecution" depending on your individual scenario.
ONGOING GUIDANCE: Floating in this environment is a crapshoot. Both stocks and bonds are maneuvering through major market uncertainties. Market participants are focused on news headlines regarding U.S. budget issues, EU debt contagion concerns, and financial earnings. That puts the direction of mortgage rates at the mercy of factors which don't exactly adhere to schedules or expectations. Yes there's still room to float longer term deals, but if home loan borrowing costs start to rise in the near future, it won't be long before Best Execution rate quotes are being pressured higher, making us more inclined to advise locking short-term floats (those that must lock in less than 15 days).
CURRENT GUIDANCE: Until/unless we see bond markets get back to a stable or improving pattern, risks vs. rewards favor locking. See our Ongoing Guidance above...
*BestExecution is the most cost 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 buy down costs.
*Important Mortgage Rate Disclaimer: The "BestExecution" 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 fiscal frisking that comes along with the underwriting process.
CAUTION: MND guidance is speculative in nature. We don't have a crystal ball, we can't predict the future, we can only share our outlook. Making the following considerations extra important........................
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?