"The Wall" absorbed a direct hit yesterday. A sizeable crack is now visible in the metaphorical structure that stands in the way of lower mortgage rates. And while the damages inflicted are not yet viewed as irreparable, "The Wall" is indeed on the verge of toppling over. This is an encouraging development for intermediate to long-term rate watchers.

Sideways mortgage rate behavior followed by an abrupt drop is apparent in the updated chart of Consumer Rate Quotes below. If the line is moving up, origination costs are rising for that particular note rate offer.  If the line is moving down, costs are getting cheaper.  The rapid decline in costs which occurred yesterday after a stint of sideways price action represents the "sizeable crack" in "The Wall". We won't be willing to say "The Wall" has fallen until a sustained rally is confirmed in the the bond market. Until then, these are the best rates we've seen since late November 2010.

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

UPDATED CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate has fallen solidly to 4.625%. A few lenders are even quoting C30 loans at 4.500 with no extra closing costs.  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 to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution" is also a moving target roughly centered on 4.375% with several lenders offering 4.25%. 15 year fixed conventional loans are still best priced at 3.875%. 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 "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  There is still justification for floating if you have an intermediate to long-term scenario or a more aggressive/flexible stance and don't mind locking later, at a loss  if "The Wall" proves unbreakable.  But for short termers, the very existence of "The Wall" suggests locking is the smart decision, especially if you're on a 10-15 day timeline or are less flexible with respect to changes in closing costs or note rate.  Additionally, if you're being quoted the lower of the two Best Execution rates mentioned above in the "current market" section, floating is even more risky as those rates can vanish in one bad day, whereas it would take several days of uncommonly good performance in bond markets to get you down to the next rung on the mortgage rate ladder. 

CURRENT GUIDANCE:  A big step was taken in the right direction for mortgage rates this week. We're now sitting at new 2011 lows heading into a long weekend. And while "The Wall" is still standing, there is now clear justification for borrowers looking to float their loan on an intermediate to long-term timeline. Further positive progress will however be slow and short-term back-ups are to be expected. From that point of view, borrowers working on a shorter lock/float timeline should remain defensive of new, lower "Best Execution" Mortgage Rate quotes. Your main goal is to keep that lower note rate offer.  Stay tuned for further developments. This is getting exciting!

 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 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 "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.