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My loan officer said he can give me a 60 day lock on a rate at no charge. If the rates go down though, then it has to be really drastic to really be beneficial to lock in the new rate.
Example, lets say I lock in at 5.5%
If the rate goes to 5.0% then he can lock me at 5.25% at no charge, but will cost me (about 0.25 points to 0.5 points) to lock at 5.0%....
If this was true, then they should be able to do even if it moves a quarter of a point....? as in lock in at 1/8 point lower (5.375%) at no charge but a cost to lock in at 1/4 point lower (5.25%) ?
Is this situation reasonable ? and is the additional charge normal ?
In a word: YES. There is more than a bit of madness in why lenders want locks -- partly the number of "unexpired locks" is used to help them determine 'demand' for a given rate (as though anyone would 'want' a higher rate...) but also to manage their internal pipeline of loan processing. They simply cannot funnel things through their systems when they get hit with a flood of new apps...
The lenders have a ridiculously complex process of checking loans so that they are not "gamed" and the loan guarantors also have very hinky QA steps to detect fraud. The fees they collect from extended locks help to cover the whole messy business of getting the early expensive part of loans to be profitable and prevent people from "prematurely" refinancing. It is a very odd process and one that I am sure could be be redesigned so that people with lower likelihood of default and greater average time of loan payments could be "pre-selected" to strengthen a loan portfolio, instead the loans are typically repackaged so that the secondary market is where the "value" of these loans is extracted and savings flow instead to the profit side of the lender. Sorta unfair, but then I do not have the billions of dollars to "write the rules"...
Good insights Chet, thanks for your reply, but is a 60 day rate lock at no charge a reasonable timeframe ? I have about 45 days from now to closing, but giving another month after that puts it at 75 days max I may need the lock for, so in my scenario, I will be fine if I lock my rates on the 15th of this month.
Most loans should close much quicker than 60 days. I am assuming you are buying new construction, than i would suggest that you add some extra time to the lock. Have you consulted with the builder yet on a time frame? also, i would ask the builder if they would agree to pay for a lock extension in case they dont finish on time they would pay the fee to extend the lock. generally a 15 day extension will cost .25 point.
Hi Victor,
This is not a new construction, but the closing is for Sept 15th, so you see I need to cover my end till Oct 15th, which is about 72 days from today. My concern is whether the loan officer is being reasonable with me by giving me the 60 day lock without any cost to me.
Thanks for your help.
Seems like the mortgage rates are going to go up within a week.... the 10 year treasury has been steadily moving up !!
I have to lock soon.
I just checked.... its 6% for 30 yr fixed for FHA on wells fargo !
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