Don't Get Burned By Mortgage Rate Locks!

Looking for a mortgage loan in Sonoma County, California? Whether buying a home or refinancing a mortgage, your lender will require you to lock your interest rate on the amount being borrowed. How long you lock your interest rate for is how long you have to close escrow. This is where consumers can oftentimes find themselves scrambling to meet the interest rate lock so the costs associated with financing remain unchanged.

A Mortgage rate lock guarantees the interest rate for a set period of time only.

As you do your mortgage comparison shopping, you’ll find rate mortgage rate locks vary, following time frames are common:

15 day-gives you the best possible financing “lowest-cost rate” available in the market on any given day-loan needs to be approved by underwriting for this type of interest rate lock

30 day-fair market rate, most commonly used for interest rate locking upfront

45 day– used for transactions taking longer

60 day-used in circumstances where the loan is prolonged, such as when one borrower is out of town for a period of time

 

The shorter the lock, the less risk the the mortgage lender takes in tying up that money.

 

Its not uncommon to see an interest rate variation by as much as .25% on the longer rate locks compared against 30 day rate locks and 15 day rate locks.

The longer the lock, the more risk the lender takes and the slightly more costly the loan can become, depending on the day you choose to lock in your interest rate. Lenders are always concerned about interest rate risk. For example let’s say you lock your interest rate today on a 30 year fixed rate mortgage at 3.5% for 30 days. If rates rise to 3.75%, they’ll make an extra .25% margin on the money you’re committing to borrow. That means if your transaction takes 32 days rather than the locked 30 days, the costs to extend your loan can easily be upwards of half a discount point of the loan amount. Using a $300,000 mortgage loan, an extension fee for an additional period of time can run as high as $1,500.

Be Prepared: The minimum information needed for a lender to provide you a mortgage rate lock

That’s a loan application, pure and simple. Despite what you might hear, you need to provide application to a mortgage lender of your choice in order for them to give you a mortgage rate lock.

This involves:

  • giving your full name
  • loan product
  • loan amount
  • date of birth
  • Social Security number
  • employment/income information as well as income and job history
  • full property address including property type
  • property occupancy
  • asset information
  • answers on race/ethnic history and credit history
What To Watch Out For 
Upfront fees such as an application fee to lock your mortgage rate, or any other upfront fee (This is the first sign you’re working with a company that cares more about their profit margin than they do your best interest).
Back Pedaling-if you’re considering working with a mortgage lender who is not upfront and transparent about all of your questions, move on. Taking out a mortgage is significant financial transaction that should be done with a professional.
Baiting and Switching does still happen.  Ask the lender upfront if you’re being quoted a 15 day rate lock or a 30 day rate lock, if the rate seems too good to be true on a 30 day lock, get it in writing.
Don’t Be afraid to let your mortgage lender know you’re shopping around and that you’re willing to lock in an interest rate, that you find fair and reasonable. A reputable mortgage lender knows consumers shop for mortgages, forcing them to be competitive to stay in business.
Do know all lenders are under very tight underwriting restrictions from Fannie Mae and Freddie Mac. Put another way, locking in the mortgage rate does not guarantee you your loan will actually close escrow.
*Mortgage Tip: get a mortgage rate quote from a lender upfront and make sure it’s an interest rate, that they can pull the trigger on if you say go (ie 30 day lock). Be prepared to send to your mortgage company, credit, debt, income and asset information so they can make sure that you can actually qualify for the amount of money you’re looking to borrow. Don’t get burned by mortgage rate locks!

 

 

 

 

 

 

 

 

 

 

 

 

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3 Comments

  1. […] you do your mortgage comparison shopping, you’ll find rate mortgage rate locks vary, following time frames are […]



  2. […] lender to do it for no charge. Most mortgage companies will gladly accept the cost of extending a mortgage rate lock for the opportunity to close your […]



  3. […] any one of these situations occur, plan on a longer escrow followed by a longer interest rate lock. The longer a transaction takes, the higher the cost. Circumstances like gathering together […]



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