Commentary and What are Points of my Mortgage Decision

Daily Market Commentary

Wenesday's bond market has opened fairly flat despite the release of several important economic reports. The stock markets are showing losses with the Dow down 5 points and the Nasdaq down 15 points. The bond market is currently down 4/32, but we should still see an improvement in this morning's mortgage rates as a result of strength late yesterday.

The big report of the morning was the first reading of the 1st Quarter Gross Domestic Product (GDP). Analysts had expected to see growth during the quarter at a 4.9% annual rate. This morning's release showed a 4.8% pace. While this was slightly weaker than expected, it still was a very strong reading. The 4.8% rate was more than double the 1.7% of last quarter and the strongest reading since the third quarter of 2003. This indicates that the economy rebounded quite well from last quarter's disappointing activity. The bond market took this with mixed results and it has had little impact on mortgage rates.

The second report of the day was the 1st Quarter Employment Cost Index (ECI). It showed only a 0.6% rise in employment costs compared to a 0.9% forecast. This is good news for the bond market and mortgage rates because wage inflation is a concern of the Fed. The weaker than expected reading should help ease some fears about it.

The University of Michigan updated their Index of Consumer Sentiment for this month. It was expected to show a reading of 89.0, down slightly form the previous estimate. However, today's report showed a reading of 87.4, indicating that consumers were not as confident in the own financial situations than previously thought. This is good news for bonds and mortgage rates.

Overall, this morning's data has failed to sway bond traders either way, leaving the market relatively flat considering the significance of this morning's data. I would not be surprised to see bonds improve slightly this afternoon, but probably not enough to affect mortgage rates. This will especially be likely if stocks move lower than current levels. Still, with the benchmark 10-year Note yield still over 5.00%, there is no telling what will happen, particularly in the short-term. Therefore, I am holding the lock recommendations for the time being.

Next week is packed with economic data for the markets to digest. The first comes Monday morning with the release of March's Personal Income and Outlays report along with the April's ISM manufacturing index. Both of these can affect bond prices and mortgage rates. Look for more details in Sunday evening's weekly preview.
If I were considering financing/refinancing a home, I would....
if my closing were taking place within 7 days...
if my closing were taking place between 8 and 20 days...
if my closing were taking place between 21 and 60 days...
if my closing were taking place over 60 days from now...
This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

What are Points of my Mortgage Decision

Points are one type of fee paid at closing by you to your mortgage lender. There are two types of points: Origination Points and Discount Points. Each point equals 1% of your loan amount. For example, 1 point on a $100,000 loan would cost $1,000.
What is the difference between Origination Points and Discount Points?
They differ in where they are applied. Origination points are charged to recover some costs of the loan origination process. Typically, your Loan Officer's compensation is based on the Origination point(s). Depending on the lending institution, the Origination Point(s) may be negotiable in whole or in part.
Discount Points are used to "buy" your interest rate lower. This is known as a rate "buydown." A general rule of thumb is that one full Discount Point will lower your fixed interest rate .250% or your adjustable rate .375%. These points lower the interest rate for the entire term of the loan. There is usually some flexibility by the lending institution in determining the actual buydown formula, but less than with Origination Point(s).
Is there an advantage to paying one type over the other?
Actually, there may be, depending on your tax situation. There is no advantage to paying an Origination Point instead of a Discount Point. However, the Discount Point(s) that you pay may be tax deductible. Unfortunately, Origination Points are not usually tax deductible. The Discount Points are usually deducted under Schedule "A" of your IRS 1040 tax return. If you do not itemize your deductions (by taking the Standard Deduction) for other tax-related reasons, you may not be able to deduct the cost of the points when filing your tax returns. Please consult your tax adviser to determine if you qualify for these deductions.
Why do some lenders charge points but others don't?
It is up to the individual lender whether or not they charge Origination Point(s). Almost every lender's pricing includes different levels of Discount Points. They may offer options with no points, 1 point, 2 points and maybe even more. The more points that you are willing to pay, the lower the interest rate the lender will offer you. It is common for each option to include fractions of points (for example, 1.25 points).
Most lenders advertise their 0 point interest rates while others list their lowest possible rate with several points attached. When comparison shopping, make sure that you know all fees that are being charged. A lender offering 7.000% + 1 Discount point but 0 Origination Points may be a better deal than the lender offering the same rate with 0 Discount Points but 1.500 Origination Points. Both types of points are calculated using the same formula. Before making a final decision, look over all details of the offer, not just the interest rate.