< Read Another Article
The Loan Process
Part 5 – Locking Your Loan! First, let’s discuss what a lock is, the kinds of locks there are, and how you can know you are getting what was promised to you when you lock your loan. Basically,
a lock is a commitment from the lender – on a given day – to provide a
certain loan at an agreed upon rate – for a certain number of days. Depending
upon the bond market, lenders change their rates every day, sometimes twice a
day in a volatile market. Regardless,
you should know there are different kinds of commitments or locks as we call
them. Think
of them in a literal sense for a moment. Bolt locks, combination, car doors, and
the list goes on. They each serve different purposes, but they are all still
tagged as “locks”. It’s
the same way with mortgages. You can lock your loan with different time criteria
and different terms and conditions, e.g., the shorter the term of the loan in
years, the lower the start rate. As
another example, if rates are trending upwards, you could lock a loan for up to
sixty, or even ninety days on a home you are purchasing from a builder, allowing
the builder the time needed to finish the home while locking the terms and
conditions of your loan. Or,
if rates are trending downward, you could lock for as short a time period as 7
days. In
each scenario this allows you to secure the lowest rate possible. The
pricing between a seven day lock, and a sixty day lock – on any given day –
from the same lender for the same loan will be about 1% in the interest rate, or
the equivalent of 2 points. (Points are the same as percentages and therefore 2
points on say a loan amount of $300,000 would be $6,000). Timing
is everything on a refinance, and a purchase mortgage. On
a refinance or a purchase, when you lock on a 30 or 45-day lock, you are
allowing all transaction-related companies ample time to perform their services. On
a purchase in today’s market (as we have discussed in earlier articles) you
must be pre-approved. In
any case, purchase or refinance, if rates are not trending up or down you will
want to try to lock on the shortest time period possible in order to get the
best pricing on any given day. Despite
leading indicators, there are always risks that rates could go up or down, no
matter what you choose to do. And
that’s where your loan agent becomes your most trusted friend. KNOW
and trust your loan agent! If you do not know one, ask your friends or family
for referrals. Talk to loan agents in person, and on the phone. Ask lots of
questions. Make sure you are comfortable with them, and their knowledge. In
rare cases, if you do find yourself in doubt, you can ask your loan agent for a
lock agreement in writing. They
should be happy to provide this to you at the time you lock the loan even though
it is not standard practice in the industry to do so. This
will disclose the lender, and the locked rate of the loan, the number of points
you must pay, if any, and by what date the loan must close. It
will also disclose exactly who is making the commitment to you. You, and an
authorized representative of the company you are dealing with will both sign the
rate lock agreement. Discuss
your lock strategy, and your goals with your loan agent. Do you plan to live
there more, or less then five years? Discuss
the upcoming economic releases coming up during the general time period you will
be locking your loan. How might this effect the bond market and interest rates? This will no doubt help you get the lowest rate-lock possible in the ever-changing market of interest rates.
|
Action Home | Financial Calculators | Interest Rates | "Easy App" | Mortgage Library | Newspaper Articles | Contact Us