Friday, December 9, 2011 / by Justin Hoffmann
There are a couple things to keep in mind when thinking about a 3.875% Best-Execution rate. First of all, if you're not familiar with our rate disclaimer that we link at the bottom of every RateWatch post, it's important. Here it is, as a refresher, in case you missed the link at the bottom:
*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 30year 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.
In other words, 3.875% Best-Execution rates mean that this the most prevalent RATE for the best qualified scenarios, and while it considers the costs involved to obtain that rate, those costs can vary quite a bit before a move up to 4.0% or move down to 3.75% would be justified. We're only just entering the very outer limits of 3.875%'s range of closing costs (on average, some lenders are already close to 3.75, some are still at 4.0 or higher).
The point of all this discussion is that, as our curiosity perks up due to discussion of "all time low" rates, it's a good time to step back and assess what that really means. It's not that we haven't been here before, and it's not a guarantee that you'll be quoted a lower rate today than you have been in the past. What IS true, however, is that the most frequently quoted top tier rates are as low today as they've ever been. While they're slightly more expensive in terms of closing costs, the net effect is the best deal we've seen in over a month.
Today's BEST-EXECUTION Rates
30YR FIXED - Down to 3.875%
FHA/VA - Back firmly to 3.75%
15 YEAR FIXED - 3.375%
5 YEAR ARMS - 2.625-3.25% depending on the lender
Historically, when rates have gotten as low as they are today, there's only been a few hours ever, when they've been able to move any lower. In other words, 3.875% is as low as Best-Execution has stably been. This is what we're talking about as we've consistently said that there's limited improvements to be had under 4.0%. If that ceases to be the case, it would constitute a pretty big shift in the Secondary Mortgage Market and we're not there yet. Things like a lackluster reaction to tomorrow's Euro-Summit could be cogs in the machine that breaks that wall at 3.75%, but that's scarcely the sort of thing we'd PLAN ON. Just outlining possibilities.
By Matthew Graham