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Mortgage rates are jumpier than a cat in a room full of rocking chairs. In a single week this month, the average rate on a 30-year fixed-rate loan shot from 4.29% to 4.51% (with 0.8 point). This week, rates averaged 4.37%,Freddie Mac says.
Those numbers matter. At the higher rate, your payment on a $300,000 mortgage would be $1,521. The week before: $39 less. That’s $468 a year — $14,040 more, if you kept the loan for 30 years.
There have been other crazy rate surprises this summer, most of them bad for mortgage shoppers. Blips like these mean that home shoppers get less home for the money. Refinancing homeowners face higher monthly payments.
You can’t stop the mortgage rate ping-pong. But you can maximize your chance at a good rate. Mostly, that involves timing your interest rate lock.
A “rate lock” is your contract with a lender that guarantees you a certain prevailing interest rate. You agree to buy the loan at that rate within a time period — 60 days, say. The lock lets you nail down a rate, so you’re covered if rates rise. (Here’s more from Bankrate.com.) If rates drop and you want to exit the agreement early, you stand to lose a fee or deposit.
1. Catch a dip
Avoid locking when rates are on an upswing, says Dale Robyn Siegel, a real-estate attorney and owner of Circle Mortgage Group in Harrison, N.Y. Well, duh. Sure. But can you know if rates will go up?
You can’t know for sure. But you can watch rates every day at your bank’s website. And MSN Money (at the bottom left of the page) shows whether rates are trending up or down. Even when rates are rising generally, as they are now, they’ll probably take a few detours up or down along the way, Siegel says.
The trick is to lock in a dip. Whether you can wait and watch depends on your timing. If you are refinancing, you may have time. If your home purchase is closing soon, you may have to lock now.
2. Don’t act on news
Rates react to news. Recent rate jumps, for example, began when traders reportedly worried that the Federal Reserve would slow its bond-buying program, which has helped keep rates low.
After rates shot up they dropped back a bit, points out Perry Harmon, mortgage broker with Financial Strategies Group, in Berkeley, Calif.
Bad news financial news or a major catastrophe in the world can push rates higher temporarily. If possible, wait a bit to lock. Rates may simmer down.
3. Put service first
When shopping for a lender, focus initially on great service, says Siegel. Collect recommendations from friends, colleagues and family. Interview several of the lenders. Tell them your approximate credit score and any problems that could affect your application — bankruptcy, for example, or a short sale, or credit problems. But don’t allow them make credit score inquiries. Wait until you’ve selected a lender. Too many inquiries could drive down your score.
After you’ve found two or three good lenders, then compare their rates to help choose, Siegel advises. Ultimately, though, good advice from a smart, expertise of a great broker or lender’s representative might get you the best rate.
4. Ask about a ‘float down’
Some lenders offer a “float down,” a rate-lock provision that offers you the chance at a lower rate if prevailing rates drop after you’ve locked. These contracts vary and they cost extra.
5. Know your limit
Identify the highest rate you can afford. Use a mortgage calculator (here’s one, at MSN Money) to find the monthly payment at various interest rates.
Maybe it’s 4.75%, for instance. If rates go any higher, your monthly payments would be too expensive. When rates approach your limit, you’ll know it’s time to lock or drop out of the game.
6. Be ready to pounce
Be prepared to pounce when rates dip, says Harmon. Do that by clearing away obstacles as they arise. If your mortgage banker, broker or lender wants a document or piece of information, get it to them as quickly as possible, Harmon says.
7. Buy a shorter lock
The shorter your lock period, the smaller your lock fees. Most borrowers now lock for 45 or 30 days, so the rate guarantee won’t expire before the loan is processed, says Harmon. On a $300,000 mortgage, a 30-day lock costs about $540 less than a 45-day lock, he says.
Other factors may trump the rate-lock timing. If rates are trending up, for instance, you may need to lock quickly, even if you need a long lock. But ideally, wait until your appraiser has delivered his report to the lender and the loan processing is nearly complete. A 15-day lock could save you $960 compared with a 45-day lock, Harmon says.
8. Chill a little
These numbers matter, but only to a point. Obsessing over tiny rate increases that actually mean just $10 or $25 more or less a month could cause you to lose a good rate.
Don’t try for bragging rights among your friends over who got the lowest rate. Relax, says Harmon. “It’s not worth the worry.”
Louisville VA, FHA, USDA, KHC , Fannie Mae Mortgage Guide: Mortgage rates rise at fastest pace in 10 years | … (louisvillekentuckyvamortgage.blogspot.com)
Locking your interest rate gives you the best chance of receiving what you spent all that time shopping for.
Generally, the terms you are quoted when shopping among lenders represent the terms available to borrowers who are closing their loans immediately.
The quoted terms you receive may not be the terms available to you at closing; weeks or even months later.
Because of this you should not rely on the terms quoted to you when shopping for a mortgage loan unless the lender/loan officer is willing to lock-in the interest rate for you and this rate lock guide will help you do that.
What is an interest rate lock?
Rate locks, lock-ins or rate commitments, are a lender’s promise to hold a certain interest rate at a specified cost, usually for a certain time period, while your loan application is being processed.
Depending upon the loan officer, you may be able to lock in the interest rate and cost you will be charged when you file your application, during processing of the loan or when the loan is approved.
A rate lock given to you at the time of application may be useful because it’s likely to take your mortgage lender several weeks or longer to document and evaluate your loan application.
During this time, the cost of mortgages may go up or down. But if your interest rate and cost are locked in, you should be protected against increases while your application is processed.
Keep in mind, if the lender finds information which is different then your original application the interest rate lock could well be voided and cause your interest rate and cost to go up substantially.
If you lose the rate lock you may not be able to afford the higher interest on the mortgage and thus lose the mortgage and the house you’re purchasing.
However, a locked rate could also prevent you from taking advantage of price decreases, unless your lender is able to lock in a lower rate that becomes available during this period. Keep in mind most loan officers/lenders are not able to lower your interest rate once you’ve signed a rate lock commitment.
It’s important to recognize that a lock-in is not the same as a loan commitment. A mortgage loan commitment is your lender’s promise to provide you with a loan up to a certain amount at some point in the future.
Generally, you will receive a loan commitment from a loan officer only after your application has been approved. This loan commitment will usually show the loan terms which have been approved, including the loan amount.
How long the commitment is valid, and the lender’s conditions for making the loan such as receipt of a satisfactory appraisal.
Only a few lenders have specific forms that set out the exact terms of the lock-in agreement. So, if they don’t offer one upfront, ask them to fill out and sign one or you’ll need to take your business elsewhere.
Others may only make a verbal lock-in promise on the telephone or at the time of application. Verbal agreements are very difficult to prove and if there’s a dispute the loan officer will undoubtedly win, since there’s nothing in writing.
Some lenders rate lock forms can contain information which is difficult to understand or even hidden in the fine print. It’s always a wise decision to obtain a blank copy of the loan officers rate lock form to read carefully “before” you apply for a mortgage loan. If at all possible, show the rate lock form to a real estate professional or lawyer.
Buyer beware, it’s essential to stay on top of your interest rate lock and to make certain you have the interest rate and terms in writing. Never assume the loan officer has locked your interest rate or it’s locked, but in actuality they are floating your interest rate hoping to get a better rebate.
One of their better schemes is to misquote the interest rate in hopes the rate will come down to what they originally quoted you, if it never does they simply try to charge you more right before closing.
We’ve seen it happen so many times with some loan officers or brokers even altering the original terms they quoted you such as raising the margin, adding a prepayment penalty, or changing indexes, caps, or even loan programs without the borrowers knowledge.
Generally mortgage lenders do not charge a fee for locking in the interest rate for your mortgage. Some loan officers may try to charge you a fee up-front, these loan officers should be avoided at all cost.
One of the few times a legitimate fee is charged is when a mortgage borrower needs to have a longer than normal rate lock.
Usually the lender/loan officer will promise to hold an interest rate for a given number of days. To get the predetermined interest rate you must close the loan within that time period. Rate locks of 30 to 60 days are the most common.
Lenders that charge a lock-in fee may charge a higher fee for the longer rate lock period. Usually, the longer the period, the greater the fee.
The rate lock period should be long enough to allow for closing. Before deciding on the length of the rate lock to ask for, have your your lender estimate (in writing, if possible) the time needed to process your mortgage loan.
You’ll also want to take into account any factors that might delay the closing of your loan. These may include unanticipated construction delays if purchasing a new home.
If you don’t close your loan within the lock-in period, you might lose the interest rate you locked. This could happen if there are delays in processing whether caused by you or not.
On occasion, lenders are themselves the cause of processing delays, particularly when loan demand is heavy. This happens most often when interest rates fall suddenly causing the amount of refinances to skyrocket.
If your rate lock expires, lenders could offer you the mortgage loan based on the prevailing interest rate. If market conditions have caused interest rates to rise, you will most often be charged more for your loan.
One reason why some mortgage lenders may be unable to offer the interest rate after the period expires is they can no longer sell the loan to investors at the lock-in rate.
When lenders lock in loan terms for borrowers, they often have an agreement with investors to buy these loans based on the rate lock terms. The agreement may expire around the same time that the rate lock expires and the lender may be unable to afford the same terms if market rates have increased.
While the lender has the biggest role in how fast your loan application is processed, there are many things you can do to speed up approval. Try to find out what documentation the lender will require from you in advance.
Much of the information required by your lender can be brought with you when you apply for a mortgage loan. This may help to get your application moving quickly through the loan process.
Once you’re done shopping for rates and have decided on a lender, be sure to bring the following documents:
Be sure to respond promptly to your lender’s requests for information while your loan is being processed. It is also a good idea to call the lender and real estate agent from time to time.
It’s always a good idea to keep notes on your contacts with the lender so that you will have a written record of your conversations.
When you’re ready to settle on your loan, you’ll want to get the loan terms that you’ve locked in. To increase the likelihood, it’s important to learn as much as you can about what the lender is promising you before you apply for a loan.
Ask for this additional information when you’re shopping for a loan:
Senior Loan Officer
Key Financial Mortgage Co. (NMLS #1800)
107 South Hurstbourne Parkway
Louisville, KY 40222