Closing Costs Creep Higher After Treasury Auction



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by Matthew Graham

It was an interesting day for mortgage rates.

Benchmark Treasury yields rose and MBS prices fell which forced lenders to reprice for the worse. However, as paradoxical as it seems, best execution mortgage rates are actually DOWN on average, but the cost to obtain those rates is UP. This is because "best execution" is determined by finding, for lack of a better term, the best "bang for the buck" among the commonly available interest rates. For example, if it costs and extra 1% of your loan amount to go from 4.875 to 4.75, but costs an extra 1.5% to go from 4.75 to 4.625, the better execution choice would be 4.75.

So today then, although the market worsened slightly, following today's Treasury auction, the "sweet spot" best-execution rate on 30 year conventional home loans shifted from being mixed between 4.875 and 4.75 to straight up 4.75. For FHA/VA loans, 4.75% remains Best Execution

Important Mortgage Rate Disclaimer: "Bext Execution" is the most efficient combination of note rate 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%. 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.

Given the amount of movement in the secondary mortgage market today, the increase in borrowing costs we witnessed was fairly minimal. Most lenders rates are up in cost by 0.125 - 0.25% of your loan amount. So for a loan amount of $100,000, that's $125-$250.

Bottom line (same as yesterday): although we are successfully out of the woods with respect to the high-risk event of Friday's employment data, we're not "risk-free" going forward. We are encouraged about the prospects for mortgage rates to improve, but we're literally operating on a day by day basis. Waiting for news and events to dictate directionality in the bond market. It can help us or hurt us, so please continue to operate on that same principle of weighing your options with the knowledge that they could rapidly change for the better or the worse.

Resource: mortgagenewsdaily.com


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