Mortgage rates have spent the better part of a month teetering on a ledge.   At risk was a phenomenon we describe as "snowball selling". The end result would have been another 0.25 to 0.375% jump in home loan borrowing costs....the third spike  in as many months.

WHAT IS SNOWBALL SELLING?

Mortgage rates have rallied in six of the last 7 sessions though and we've slowly backed away from the ledge. To illustrate the recent behavior of mortgage rates, we offer the chart below. It graphs the average origination closing costs associated with specific mortgage note rates as quoted by the five major mortgage lenders.

If the note rate line is moving up, the closing costs associated with that rate quote are rising. In December, closing costs rose rapidly. Mortgage rates did improve from those levels, but then moved sideways for 7-weeks. And then the range broke following the January Employment Situation Report and consumer rate quotes rose back to their December highs. As you can tell, borrowing costs have steadily improved since then.....

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. SEE OUR MORTGAGE RATE DISCLAIMERS  BELOW.

UPDATED CURRENT MARKET: The "Best Execution" conventional 30 year fixed mortgage rate improved to 5.00% today.  There is an opportunity to lock 4.875% for those who wish to buy down their rate, but this quote carries higher closing costs than 5.000%. The upfront cost of permanently buying down your rate from 5.000 to 4.875% 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 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%. Five year ARMS are best priced between at 3.625 and 3.75%.

FRIDAY'S GUIDANCE:  Guidance remains in favor of staying defensive.  We're still waiting for "something more," and still not confident that we've begun a mortgage rate recovery.  With no economic data to inform the markets today and with a holiday on Monday, we'll have to wait until next week to find out if the generally positive trends seen this week will continue.

NEW GUIDANCE: A flight to safety poured into the bond market today. This allowed lenders to improve loan pricing on first releases of rate sheets. Positive progress lasted throughout the day and many lenders were able to reprice for the better.  As a result "Best Execution" mortgage rates have moved lower.   Although we remain defensive, we are seeing signs that imply mortgage rates are due further improvements. The secondary mortgage market rally is however still quite immature and our confidence level has only improved modestly. READ MORE <--- You must read this post if you are thinking about floating for lower mortgage rates.

A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.

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