The current market dynamics are such that have not been seen in recent history. Cambridge Realty Capital Managing Director and Head of Capital Markets Tony Marino commented, “In my 25 years’ experience with government-insured debt markets, the last year has shown much more volatility. We are now seeing 20 bps swings in a day, which can mean hundreds of thousands in loan proceeds. Recently, we have seen the range of rates swing between 15-90 bps within a month, when in times past that would occur over the course of a year.”
Long-term interest rates have had less extreme movement than short-term rates, but long-term rates have still doubled. However, Marino opined, this is not necessarily a cause for despair. “With this troubling circumstance, new opportunities have been created. There has been a qualitative change in the structure of the market, with the daily, weekly, and monthly swings in these interest rates becoming more extreme.”
While these swings can make debt service difficult to estimate as transactions move toward closing, some HUD mortgagees can take advantage of momentary dislocations for your fixed-rate mortgage. “Confident fixed-rate lenders in constant contact with borrowers can provide updates throughout the rate lock process, allowing borrowers to be in a position to make a quick and confident decision when an opportunity arises,” Marino assured. “Some lenders have the ability to lock your interest rate during a beneficial moment in the markets and hold that rate through closing of your loan.” It is something Cambridge has done numerous times in the past, ultimately saving individual borrowers thousands to tens of thousands of dollars in debt service.
Marino cited some recent record-breaking closings where borrowers had been able to lock their rates when they were 250 bps below the spot rate at closing. “The borrowers decided, based on the information available and their goals, that the best course was to take advantage of an early rate lock, even prior to receiving a firm commitment from HUD. That decision proved very prescient on their part, but the opportunity was only available due to Cambridge’s long-term relationships with the credit markets to rate lock a loan without a firm commitment.”