Real Estate NewsMarket Stall Presents Opportunity for Mortgage Rate Lock
Wall Street appeared to shrug off the Federal Reserve"s new bias toward higher
interest rates this week, but mortgage rate watchers were waving red flags
about higher mortgage rates in the weeks to come.
That should be a signal to home buying consumers to take the breather
as an opportunity to get those rate locks fastened down.
A day after the Federal Open Market Committee meeting decided to move
to a Fed Funds tightening bias, and the possibility of higher interest
rates, the bond market essentially took a breather from recent upward
yield pressures, but Mortgage-Net.com,
Bankrate.com and HSH Associates, among other rate watchers on the Web,
still pointed to higher rates in the weeks ahead.
Before the Feds met, some market watchers warned the bond market was
becoming susceptible to a hard sell offs in the face of expected bad news in
the weeks ahead.
Fannie Mae on May 20 reported 30-year fixed-rate mortgages rose sharply to 7.23 percent this week from 7.10 percent last week. The rate is the highest they"ve been since Nov. 7, 1997.
"With last week"s news of the sharpest rise in CPI in almost nine years, and the Fed"s announcement of its bias toward higher interest rates, mortgage rates began to climb," said Frank Nothaft, deputy chief economist for Freddie Mac.
Bankrate.com said while changes in the so-called "long bond" yield don"t
influence mortgage rates directly, they do suggest whether market-watchers
expect inflation to pick up in the months ahead. If bond values fall, yields
creep up and along with them mortgage interest rates.
Also, before the Feds met, the bond yield climbed to 5.79 percent -- the
highest level since June 9 and Bankrate.com"s national average mortgage rate
was at or above 7.10 percent for only the second time since May of 1998.
Further upward inflationary pressure came from higher oil prices helping to
push up the Consumer Price Index by 0.7 percent, the worst report in more than
eight years. Even the so-called "core" rate, which excludes food and energy
numbers, rose 0.4 percent, twice the level expected.
In the recent past, mortgage markets have tended to climb ahead of bad
news, so consumers might want to take the opportunity now to lock in their
interest rates.
What is a rate lock?
A traditional rate lock, also called a "lock-in", is a
lender"s guarantee that you"ll get a certain interest rate, number of points,
and other cost-related features, according to Warren Myer, CEO of San Jose,
CA-based Mortgage-Net.
The lock is good for a specific period -- if you fail to complete your home
purchase or refinance before the clock runs out, and interest rates rise, be
prepared to pay the higher rate.
Unfortunately, if interest rates fall during the lock period you can"t take
advantage of them unless you rewrite the lock and pay additional costs.
Still, the lock is a relative safe bet, especially when rates become
uncertain as they are now. To play for higher stakes, you"ll have to pay and
accept a greater risk.
A "floating" or "float down" lock grants you a lower rate if rates fall
within a given window of time. You lose, however, if rates rise during the
period.
"What often happens is there"s a lock-in agreement and then another form
for the float down that would specify the terms and conditions of the float
down," said Diane DeMarco, vice president of marketing for 1st Nationwide
Mortgage in Frederick, Md.
"The period of time during which you can lock with a floater is so many days
before closing or some other period. It"s not a free for all. It"s pretty well
defined," DeMarco said.
Locking down the locks
Whatever lock you choose, get the guarantee in writing. Oral agreements are
difficult to prove should it come to that.
Unless your contract says otherwise, a rate lock could also prevent you
from taking advantage of lower rates, should rates decrease.
Lock in as many of the costs you can, the rate as well as points.
If you see a rate you want, set the lock ""on application"" rather than
""on approval."" On approval means you won"t have a stab at rates until the
loan application is approved. That could be weeks away and rates could change
unfavorably in the current market.
Shop around for both the terms of the lock contract and its cost. Some
lenders may charge you an up-front, non-refundable fee should you withdraw your
application, if your credit is denied, or if for some other reason you don"t
close the loan. Others might charge the fee at settlement. The fee might be a
flat fee, a percentage of the mortgage amount, a fraction of a percentage point
or a higher interest rate. Some lenders offer the service at no cost. How much
you pay will vary among lenders depending upon the length of the lock-in
period, the options you choose, and whether to mortgage rate is fixed or
adjustable and if it"s a purchase or a refinance.
The lock-in period should be long enough to allow for settlement,
contingencies imposed by the lender or purchase contract and other factors that
could delay the process. Most range from 15 to 60 days. Anything longer could
be cost prohibitive.
Before deciding on the length of the lock-in, find out the average time
for processing loans and ask your lender to estimate (in writing, if possible)
the time needed to process your loan. Consider all factors that could delay
your settlement, including the time it will take you to provide requested
materials about your financial condition, unanticipated construction delays on
a new house and the like.
Once you lock-in a rate, you must make sure that your loan is approved and
closed before the commitment expires. Submit a completed loan application to
your lender as soon as possible. Follow up to make sure that any additional
documents required by the lender (pay stubs, savings and investment account
statements, etc.) are sent without delay.
Finally, if you have a floater lenders are too busy to monitor rates and
it"s up to you to keep an eye on the market. One way is to park your Web
browser on the mortgage rate watching sites including Mortgage News
Service,
HSH, and Quicken Mortgage,
among others.