Mortgage Definitions: Lock In and Lock In Period

It is common to hear the terms Lock In or Lock In Period associated with your new home purchase. The terms are very important to your financing and it is important to have an understanding of them.

Lock In – An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock In Period – The time period during which the lender has guaranteed an interest rate to a borrower.

Previously, we examined different costs associated in Free Mortgage Step Right Up! These costs are either in rate and offered by the wholesaler via yield spread premium or they are paid upfront as pre-paid interest also known as discount. Each morning the investor sets the rates they are willing to sell on the open market based on their risk tolerance. They will set what they determine to be the par rate of the day and build the pricing off that rate. Par rate is generally represented with a 30 day lock defined as the lock in period.

Lock in Periods  are important because they are the time that you are given to execute the funding of your loan at the rate and the cost that you “Locked In” at. The shorter the period of the lock the cheaper the costs for the rate that you are locking in.

For Example: If you were locking the rate 4.75% today on a 15 day  lock the cost would have been .125% discount. The same rate locked for a 30 day period would have cost .250% discount. To give yourself an additional 15 days to get your laon closed it would have cost an additonal .125% of the loan amount. (this example is for illustrative purposes only and may not represent your borrowing position. Rates were on a 30 year conforming fixed rate mortgage with 740 fico, full doc on a single family residence purchase. Please consult your professional regarding your loan specifically.)

The constant change in the market require the investors to at times make midday chnages to the pricing. The imrovements can be for the better or for the worse. There are cases when more than one change can occur in a given day. If you have locked prior to the change you are safe from the change. If the rates have gotten better you are not allowed to get the better rate or pricing that it changes to. On the other hand if the pricing deteriorates you are locked in at the pricing prior to the deterioration. Pricing is time stamped so it is imperative when making a decision you are decisive. See Don’t bend over picking up pennies while dollar bills fly over you head  ! Indecision can prove to be a costly mistake.

For More Reading on Rate Locks, Lock In or Lock in Period you can also read:

Mortgage Locks: Certainly Uncertain! 3 tips to locking your mortgage.

Mortgage Rates Locking or Floating part 2 of 2 by Jeffrey Belonger

As always thank you for reading,

Matt Freeman

Breaking News: Fannie Mae and Freddie Mac to the Rescue?

This week in response to the Homeowner Affordability and Stability Plan (HARP) both Fannie Mae and Freddie Mac have released their own versions of Refinance programs. Fannie Mae’s DU Refi Plus and Freddie Mac’s Relief Refinance Mortgage. The programs are geared to help homeowners that are underwater on their house refinance. This will allow consumers to capitalize on the low rates that are available today.

The Program – Both programs will allow consumers to refinance their first mortgage up to 105% of the value of their home currently. Any second lien holder can be subordinated to an unlimited CLTV. The program is not restricted to a primary residence.  If your current loan does not have Mortgage Insurance it will not be required on the new loan. If you have Mortgage Insurance currently your Mortgage Insurance provider will have to agree to modify which they may not be willing to do. There are no minimum credit scores but there are adjustments for the lower scores on the Fannie Mae Program. So far each wholesaler is a little different in their offering of the product. This is due to their own internal risk tolerance. Some will offer the High Balance temporary loan limits and others have restricted it to 417K.

The Catch – Your loan has to be owned or serviced by Fannie Mae or Freddie Mac. To determine if you are eligible for the program you have to visit:

Freddie Mac at http://www.freddiemac.com/avoidforeclosure/ and click on “Does Freddie Mac Own Your Mortgage?”

Fannie Mae at http://www.fanniemae.com/index.jhtml and click on “does Fannie Mae own your Mortgage?”

With limited information they will tell you if they own or service your Mortgage. If they do then you have the first major step done on your journey.

The program itself is not very complicated but due to the fact that every institution will have their own overlays on the product it will be best to consult your Mortgage Professional for your individual situation.

All information in this post has been taken from a variety of my sources and from a variety of wholesale channels. Please keep in mind that this is a very new program and with that patience will be an extreme virtue.

As always I thank you for reading,

“You will always get the facts here!”

Don’t pick up pennies while dollar bills fly over your head!

Recently Market Watch published a statement that read: Freddie Mac: Fixed mortgage rates hit another low (Marketwatch Bulletin Published 7:29 am Thursday). At this point we are generally begging borrowers to take the lowest rates that we have seen. The paper is yesterday’s news people so when you call the following day as they publish the good rates they are gone.

Many times I cannot get a borrower to lock their rate because the media makes it appear that rates will continue to go lower. If not the media the government makes it seem that they will continue to slide. At this time I had mid to high 4′s available. Fast Forward to Friday at 3pm. The rates were low to mid 5′s. A movement of .5% in less than 36 hours.

The Moral to the story is simple: Lock Profit. If your mortgage professional says I can save you $319 don’t try to get to $350. Walk away from the table sir/mam. Don’t bend over picking up pennies while dollar bills fly over your head!

I am sorry to be out of character and rant for a moment but I cannot understand why we choose not to lock in savings and say in the same sentence that money is tight.

As always thank you for reading,

Mortgage Locks: Certainly Uncertain! 3 Tips on locking your Mortgage.

When is the best time to lock in my mortgage rate? After all rates are at 3.95% are they not? Heck I think I should wait because the stimulus package is going to help me out and lower the rates to zero. My friend said that they got 4.5% yesterday and I want that rate. I heard that the fifteen year fixed mortgage is 4%. I read in the news that my loan can be modified to as low as 2% and I would like to do that right now can you help me.

OK, I am getting a little redundant but the point to all of the above ranting is simple. Rates are all over the map and they are custom tailored to the individual, the property, and the time that you are acquiring your loan. It is a common question to ask your professional is today the day that I should lock? If they state that absolutely without a shadow of a doubt today is the best day Run!

Larry Baer of Market Alert has this to say: The Market is always right! You and I are some of the time.

In layman’s terms that means to me that you will never be able to time the market and there will always be a rate lower than yours and there will always be a rate higher than yours. Here are three tips that will help you in your decisions to lock your mortgage:

1) If you like it, Lock it – I am a huge proponent of this tip alone. It is your mortgage and your payment that you have to live with for the next thirty years. If there is a payment that you are comfortable with and you like the rate then lock and never look back. Rates are changing by the minute. A swing is rate of a .5% for the worse on 200K is about $62 a month. We tend to think about how much it could go down but I encourage you to remember that we are at historically low interest rates and any rate is a good rate.

2) Don’t Share your business with Friends and Relatives - I am not saying not to be excited about your new home purchase but I am saying to be selective about your excitement. Comparing rates and down payments and programs is certain to hurt someones feelings. As I said before there are always lower and higher rates than your own. If you are the higher rate you wonder why and second guess a good thing and if your lower your celebration has caused others to second guess their dealings. How often do we share our retirement funds or down payment options, or income and credit? That is right we keep the information that tailors our mortgage to ourselves and shout out our rate. Only you and your family have to be excited about your finances and the rest of the world can remain in the dark.

3) Ask your Broker or Banker about Float Down Policies or Rate Renegotiation Prior to Locking – Many of the wholesalers have taken a proactive approach to the market changes. They do not want to lose your business because that costs them money. In order to keep the loan active they are  sometimes willing to renegotiate the terms of your lock. Other wholesalers have a float-down policy in place. They will allow for a float-down of the rate to current market. There is almost always a cost to do this so consult with your Mortgage Broker or Banker on how this applies to your Mortgage.

Just Remember that your Mortgage is yours. It has to work for you and noone else. It is important to be educated and confident in your choices. Choose a Mortgage Professional that makes you feel comfortable with those decisions. You have made a great choice to buy in the current market environment. Take control of that choice be proactive in your education and trust your choices.

As Always thank you for reading,