After spending the first four months of 2011 in a tight range, the primary mortgage market is still in the midst of a potentially significant shift lower in home loan borrowing costs.

We apologize for using the same opening line in each post since last Monday, but there have been no new developments to report. At least this way, if we do update the above verbiage, you'll know it was for good reason.  As we've mentioned a few times here recently, there are going to be bumps in the road even if rates to continue their general trend of improvements.  Today constituted the first bump we've encountered in almost 2 weeks as home loan borrowing costs rose juuuuust slightly.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.75%.  If you are looking to move down from there, you'll be assessing the trade-offs between higher closing costs and lower monthly payments.  This could be worth it to applicants who plan on keeping their new mortgage outstanding for long enough to break even on the extra costs.  More lenders are pricing conventional loans aggressively because competition is so tight in the primary mortgage market.  On FHA/VA 30 year fixed "Best Execution" has fallen from 4.75% to 4.50%.  15 year fixed conventional loans are best priced at 4.000%. Five year ARMs are best priced at 3.375% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  Whereas today was relatively uneventful, tomorrow brings our next batch of "risk."  We're on the edge of our seats in the expectation of short term pull back from recent strength, meaning that shorter term/more sensitive scenarios are at the most risk of losing what are currently great offerings.  If the economic reports are grim enough and demand is high enough for auctions, there's a chance that we wouldn't see rate rise, but it doesn't carry the kind of odds you'd want to bet on.  As far as medium/longer term outlooks, as long as you know how much worse you'd let your quote get before locking at a loss, the possibilities of future improvements are valid enough that floating can make sense.

CURRENT GUIDANCE:  The risk-heavy portion of the week is underway and the "short term pull back from recent strength" seen today continues to be a possibility through the end of the week.  The good news for short-termers is that very little was lost today by way of costs.  Best-Ex was unchanged. If you're in a short term or more urgent scenario, or otherwise can't afford to lose any ground on COSTS (let alone the actual RATE), we're lock biased for that crowd at the moment.  For longer term outlooks, especially those that don't absolutely NEED to refinance or are otherwise flexible in terms of time and costs, it is acceptable to float as long as you set a stop-loss and stick to it should rates begin to rise.

 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?

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*"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 buy down 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 fiscal frisking that comes along with the underwriting process.