April 3rd, 2019 8:35 AM by Jackie A. Graves
When consumers start to get serious about buying a home or maybe
refinancing an existing mortgage, one of the first things that will be
researched is interest rates. Interest rates help determine affordability and
lenders use current market rates and terms to help prequalify and preapprove
borrowers. It can be a bit confusing at times and maybe even overwhelming when
looking at all the rate choices. There’s the note rate and the annual
percentage rate and of course there are closing costs to consider. Different
loan terms will have higher or lower rates. A 15 year rate will be a bit lower
compared to a 30 year term using the exact same loan amount.
When calling around for current rates consumers can get an
up-to-date rate quote but will also be informed that until an application is
received and credit report reviewed, the quoted rate can vary between what was
in initially quoted to the final rate at the settlement table. But what future
borrowers cannot do is get that rate guaranteed over the phone. The quoted rate
cannot be locked based upon a phone conversation or a standard
One of the initial disclosures borrowers receive when first
submitting a completed loan application is an Interest Rate Lock Disclosure.
These disclosures can vary somewhat from one lender to the next but they all
spell out the very same thing- when you can lock in your rate. Most lenders for
example won’t allow anyone to lock in a rate unless the loan application is
considered complete. One of the factors that define a complete application is a
property address. When someone is shopping around for a home with a preapproval
letter in hand, the interest rate on the desired loan is dynamic and can change
from day to day. Until there’s a property address, the rate is still floating
with the market.
Interest rate locks will also vary based upon the time needed to
close a loan. If for example a new sales contract is signed and the closing
date is 30 days away, a 30 day lock will be needed. If the closing is further
out then maybe a 45 or 60 day lock will work. The longer the lock term, the
more expensive the rate can be. A 60 day lock might cost the borrowers another 0.25%
in point compared to a 30 day lock. On a $200,000 loan, a 0.25% point is $500.
In addition, a 15 day lock would be less expensive than a 30 day lock.
Finally, know that lenders take locks just as seriously as you
do. When lenders lock in a loan, they set aside the funds needed for your new
mortgage and commit that loan for sale based upon the price that day. If you
lock a loan at 4.50% for 30 days, the lender reserves those funds for you and
prices the loan based upon current market conditions. If rates go up, you’re
protected because of your lock. If rates go down after you’ve locked, well,
that’s what you locked in at.
There are those that will adjust your rate lower if interest
rates have dropped quite a bit from when you first locked but getting a “float
down” when rates have fallen say 0.125%, you’re probably not going to get too
much cooperation for lowering your rate. You can ask your loan officer about
rate locking advice but experienced loan officers know that it’s a bad idea to
advise clients on when to lock in a rate and leave that decision solely up to
When you first receive your Rate Lock Disclosure, make sure you
read it and understand it completely. There’s some important stuff in it.
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