Rates for the most part have been holding steady. We as mortgage brokers must watch what the market does and the index's that effect rates. Now without getting into the details of what exactly affects rates and what index's we watch I hope this blog gives you some insight as to the rate locking process.
We as brokers can lock rates anywhere from 7 to 120 days out. What does this mean for you? Well, shorter lock terms typically mean lower rates and fees associated with that lock. Vice versa with longer locks these usually result in a higher rate and increased fees. Why? Take for instance someone wanting to lock a rate at 120 days. You (as the client) are wanting to lock today's rates in for a future time. The lender must in turn secure funds, typically "hedge" or long or term notes to finance the money for your mortgage. With this added risk, (4 months out) the lender will charge 1/2 point or even 1 point discount to secure your lock, which if you close your loan with this lender will be refunded. The next question that I am sure is on your mind, is why charge a point discount? Well, from the lenders perspective what happens if you lock your rate at say 6.5% on 120 days. Four months past and rates drop to 6.25% and you move your loan to another lender and close the loan with them. Well, the original lender for which you locked is out money for securing your funds for the last 4 months, so to cover their costs they typically charge a point to secure that you will close your loan with them and if not they can at least cover their costs by the originating point. Now most lenders allow for a one time float down during the course of your lock. This means that on our same 120 day lock at 6.5% and 15 days from closing rates have dropped to 6.0% the lender will allow you to "float down" to 6.0% at no charge, you close your loan and the originating point is refunded. Why would a lender do this? Lenders want your business they would rather have your interest over the next 30 years rather than collect 1 small discount point.
Shorter locking terms are much different than the longer options. Seven to sixty-day locks typically do not require any fees associated with the lock however, there are no "float down" options available either. Either way it's a gamble and you must do business with someone who knows how to monitor rates and gives you good advice on the type of lock that's best for you. Rates change daily and sometimes several times a day so dealing with an experience individual/company is imperative!
Your comments are welcomed!
Brought to you by Professional Mortgage Group, Inc. Your Columbia Missouri Mortgage Broker.
We as brokers can lock rates anywhere from 7 to 120 days out. What does this mean for you? Well, shorter lock terms typically mean lower rates and fees associated with that lock. Vice versa with longer locks these usually result in a higher rate and increased fees. Why? Take for instance someone wanting to lock a rate at 120 days. You (as the client) are wanting to lock today's rates in for a future time. The lender must in turn secure funds, typically "hedge" or long or term notes to finance the money for your mortgage. With this added risk, (4 months out) the lender will charge 1/2 point or even 1 point discount to secure your lock, which if you close your loan with this lender will be refunded. The next question that I am sure is on your mind, is why charge a point discount? Well, from the lenders perspective what happens if you lock your rate at say 6.5% on 120 days. Four months past and rates drop to 6.25% and you move your loan to another lender and close the loan with them. Well, the original lender for which you locked is out money for securing your funds for the last 4 months, so to cover their costs they typically charge a point to secure that you will close your loan with them and if not they can at least cover their costs by the originating point. Now most lenders allow for a one time float down during the course of your lock. This means that on our same 120 day lock at 6.5% and 15 days from closing rates have dropped to 6.0% the lender will allow you to "float down" to 6.0% at no charge, you close your loan and the originating point is refunded. Why would a lender do this? Lenders want your business they would rather have your interest over the next 30 years rather than collect 1 small discount point.
Shorter locking terms are much different than the longer options. Seven to sixty-day locks typically do not require any fees associated with the lock however, there are no "float down" options available either. Either way it's a gamble and you must do business with someone who knows how to monitor rates and gives you good advice on the type of lock that's best for you. Rates change daily and sometimes several times a day so dealing with an experience individual/company is imperative!
Your comments are welcomed!
Brought to you by Professional Mortgage Group, Inc. Your Columbia Missouri Mortgage Broker.
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