Considerations when "Loan Locking"
A Great article from my friend Monika over at Benchmark Lending. Borrowers and Mortgage "Getters" this is for you:
Another frequent question borrowers ask is "When should I Lock my loan?" What sounds simple is actually not so simple. Here some things to consider and discuss with your loan officer:
- What's the market saying about the future of rates? As discuss before, mortgages are bundled and sold into the secondary market as Mortgage Backed Securities (MBSs). As such, MBSs are investments that need to attract investors. Because there is a finite amount of cash in the world, many different investments (stocks, bonds, commodities, etc.) are all vying for those monies. So, a simple guideline is bad economic news (that would scare people from the stock market) like high unemployment or country's defaulting in Europe, drive the money into MBSs. More people want to buy MBSs, the lower the rate of return, those investors will demand...and therefore, lower rates. Brush up on your economic knowledge, or better yet, work with a loan officer who can help you.
- The duration of the lock. Most lenders can offer you a variety of lock periods (typically 7 days, 15 days, 30 days, 45 days and 60 days are the most common). The shorter time period you lock for, the more aggressive a lender can be with pricing; therefore, waiting can be beneficial.
- The duration of the lock- Part 2. When deciding how long a lock to take, try and make sure your projected closing date is accurate. Ask about any underwriting and title issues that may be outstanding, as well as confirming that your seller is on the same page.
- The duration of the lock- Part 3-Even if you believe 30 days is a comfortable time for your loan to close, ask your LO the difference in price for a 45 (or even 60) day lock. The cost of having to extend a lock that is expiring is often more expensive than just locking for the extra time up front.
- Know your loan program. Rates on fixed rate mortgages are very sensitive when compared to adjustable rate products. Longer terms (30 year versus 15 year) are also more likely to have significant swings as news hits the market.
- Explore multiple rates. Discuss the different pricing for a couple different rates. Depending how long you plan on staying with this mortgage, it may make sense to pay discount points to secure a lower rate. Additionally, it may make sense for you to pay a higher rate to obtain a lender credit to cover some of your closing costs. See last week's blog for more details.
- Discuss your lender's policy on what happens, if you lock and rates go down. Understand that locking your rate is a contract in which you and the lender make promises. Some lenders collect fees for locking to bind you to that promise. When rates move up, you are happy that you can force the lender to honor that contract. When rates go down, many clients look for ways to "negotiate" better terms. Be clear on your lender's stance at the time of locking.
Many people pick a loan officer based on a rate quote, but I believe, you need to make sure you are working with someone who can advise you on individual loan product choices and counsel you on when to lock. When deciding when to pull the trigger, my advice is "Don't be greedy. Pigs get slaughtered". Lock when you are happy with your new payment.