What is A Mortgage Rate Lock?

At some point during the mortgage application process, the borrower must exercise their agreement with the lender to lock in the rate for their final mortgage. 

What is a Mortgage Rate Lock?
A Mortgage Rate Lock protects the borrower from the risk that interest rates will increase during the rate lock period. It guarantees that the lender will offer the borrower a specific combination of interest rate, points or interest rate credit at the closing of their loan.
If market rates rise after the rate is locked, the borrower will still get the lower rate, to the lender’s detriment. But there’s a downside: If rates fall after the rate is locked, the borrower might not be able to take advantage of that opportunity. 

When Can a Mortgage Rate be Locked?
Buyers typically must wait until a seller has accepted their purchase offer for a specific property before they can lock in an interest rate for their mortgage. In addition, the lender must have certain information about the borrower and the details about the transaction before a rate can be locked. This includes receipt of all signed legal disclosures, the borrower’s credit score, anticipated loan-to-value ratio, property type and the borrower’s signed intent to proceed with the transaction. Until all pieces of the puzzle are in place, the lender can not accurately commit to any final interest rate, cost and terms.

How Long Can a Mortgage Rate be Floated?
When a mortgage rate is locked depends on the borrower’s tolerance for risk. The purchase and sales contract dictates when the loan must close. The borrower may opt to let the final mortgage rate ride or “float” with the market until they feel they can get the best deal. Of course they run the risk that the market will turn in their time period and rates will rise from current conditions.
A good mortgage loan officer may have, in good faith, projected a final mortgage rate for processing purposes, but the mortgage application cannot be approved until the final rate has been locked in.
In today’s mortgage processing environment, a mortgage rate could be floated until about 14 days prior to the prescribed closing date. This should give the lender to deliver the final disclosures, the underwriter time for a final review of the application and to issue a “clear to close,” and time for the closing deportment time to deliver closing package to the closing agent.

Should You Choose a Longer Rate Lock Period?
Borrowers are well advised to choose a 45 to 60 day rate lock period to ensure they can get the agreed upon rate even if there is a delay in processing their mortgage application. If a loan fails to close within the rate lock period, the borrower will charged the higher of the original lock and the current interest rate. If rates are higher, the borrower may be offered the opportunity to extend the original rate at a cost of 0.25 points for each 7 day period. (A point equals 1.00% of the base loan amount)

How Much Does a Rate Lock cost?
Most lenders will not charge for a Mortgage Rate Lock.  . But a rate lock isn’t free. Rather, a longer rate lock typically involves a higher interest rate, which is more expensive for the borrower. The interest rate or “pricing” difference between a 15-day rate lock and 60-day rate lock might be as little as one-eighth or could be as much as half of a percentage point. The longer period protects the lender from potential market deterioration. The shorter the rate lock period, the more risk the borrower is taking on, but they should be getting a better price.”

No Mortgage Loan officer is an interest guru. But he does understand the lender’s commitment to you and will do his best to honor the rate lock obligation. However, the complexity of your application and issues like: failure to provide additional documentation in a timely manner, appraisal concerns, possible title problems all add time to the process.

There is rarely a reason not to lock a loan as soon as you can. Interest rates change daily, sometimes hourly. To protect yourself against the volatility of the marketplace, it’s a good idea to lock your rate once you are satisfied with the rate. The reason some buyers dislike loan locks is because they want to grind every dime out of a transaction that is humanely possible. Just remember that if the rate was acceptable when it was locked three weeks ago, a drop of an 1/8 of a point or so isn’t the end of the world. You don’t need to be that kind of borrower to get a good deal.

Read more: http://www.bankrate.com/finance/mortgages/questions-rate-lock-answered.aspx#ixzz3cy8lb29i

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA has confirmed that the Monthly Mortgage Insurance Premiums (MIP) Are Increasing for the home loans it insures effective April1, 2013.

If you are sitting on the fence deciding whether to buy a new home this spring,
Now Is the Time to Buy. It’s going to get more expensive as the year progresses.

1.   Beginning April 1, 2013, FHA Monthly Mortgage Insurance Premiums Are Increasing by .10%
         •   For loans with down payment of between 3.5  and 5.0%, the MIP will increase
              from 1.25%  to 1.35%
         •   On loans with a down payment of more than 5.0%, the MIP will increase from
              1.20% to 1.30% 
            ◊   The increase will add about $13 a month to the payment on a $150,000 loan.
                  Not a lot … But it will affect buyers Debt-to-income (DTI) ratios and could
                  prevent some  buyers from qualifying for mortgages they might have
                  qualified for prior to the change

2.    FHA will also eliminate the cancellation of these premiums when the loan is paid down to 78% of the original appraised value.
         •   For loans with less than a 10% down payment, the MIP will be required to be paid for the entire 30 year term of the mortgage.
            ◊   The new monthly MI premium on a $150,000 FHA mortgage will be about $160.00 per month. Buyers with just a 3.5% down payment – even those putting 10% down – will pay this premium for the entire term of the loan … without regard to the value of the home and the decreasing balance on the loan in years to come.
            ◊   Do the math … that’s an additional $38,400 a home owner will have to pay in insurance premiums over a 30 year period

Remember, this is the 2^nd FHA Monthly Mortgage Insurance Premium Increase  in 12 months. Last year’s 0.10% increase was mandated by the Temporary Payroll Tax Cut Act signed by President Obama in 2011. The Act has expired, but the premiums continue. This time the increase is needed to shore up FHA’s capital reserves which are in jeopardy of default.

Personally I think that FHA’s Monthly Mortgage Insurance Premiums Increase is a step backwards for the Real Estate Market.  
HUD and FHA claim their mission is to create a strong, sustainable housing market that will bolster the economy and protect the consumers. First Home Buyers will feel the impact of these changes and present a barrier to home ownership.  That’s ironic because the new administration claims to be an advocate of medium income households. Strange way to show support?

Bottom Line: The housing market is beginning to see an increase in home sale. This will be tempered by an increase in home prices and the expected increase in mortgage rates. Now is the time to consider conventional financing as a viable mortgage option and a take a hard look at other mortgage programs with lower down payment requirements and cheaper MI

Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. We’re licensed in all 6 New England states; NY and FL too. I’m here to help.

Mortgage Rates Continue to Fall at Unprecedented Rate

Mortgage Rates begin the week at new all-time lows. And this is after last week’s previous all-time lows.  Rates are incredible …
  •   Conforming 30-year fixed rates for borrowers with a 680 credit score and an 85% LTV are in  the mid-3.0% range. 15 year conforming rates are now below 3.00% 
  •   30 year FHA insured rates for borrowers with a 640 credit score and a 3.5 % down payment are in the low 3.00% range.

Even at these low rates, some lenders are willing to contribute a point or more to the borrowers closing costs.

Call Me today at 860.945.9284 to review your mortgage options.
Purchase or Refinance… I’m here to help.

Trying to decide whether to lock or float your rate; go to http://www.mortgagenewsdaily.com/consumer_rates/275768.aspx