Mortgage question: locking interest rate

There is a lot of turbulence in the MBS market right now. Rates improved a good bit yesterday (pricing was about 1% better on MBS), but have been down today. Its an up and down market, but is trending toward increased rates due to recent annoucements by the Fed regarding their continuing purchase of MBS. An extended lock may be an attractive option moving forward for some borrowers that won't be closing until the fall or winter. I'm not optimistic about rates coming down.

 

It isn't free. They're passing the cost along to you with the rate. That's why this rate isn't very good. I'm quite familiar with this, as I work in Secondary Marketing for a major lender in the Houston area, so I can answer any questions you may have.

 

The rates are over 5% now? Thats crazy.
Glad we bought when it was still low - Dec 2012 @ 3.5%

 

I think I've got a pretty good understanding of what the rules are now. I still don't get why the mortgage company is taking the lowest score between my wife and I as the determining factor in our interest rate. I would understand more if they took MY lowest score since I'm the primary borrower. I'm really upset at this.

If I lock this in, I still get a float down. Do you recommend that I lock in ASAP and just float down when the opportunity arises? The thing is, I'm fairly certain that I'm not using this company. I dont want to lock and be stick woth them. Could i lock and Atill have the option to decline their loan?

It's the builder's mortgage company, and the only reason I applied with them is because of their incentives towards closing costs.

This is exactly what's happening. The 60 day rate is actually 5.15%. The adder is .23% or something like that. I wish we could have locked when we started this process. Rates were way lower.

 

I'd recommend that you lock in as soon as possible. Rates are definitely trending up. If you want to take a bit of risk, you can try waiting for a good market day. Friday and Wednesday ended up having some improvement and we had many borrower's who were able to renegotiate their rate.

As for the credit score issue, lenders will always use the lower of the two credit scores because the major investment banks use models that predict the success of repayment based on various different loan parameters. Hence, they base note pricing on the lower of the borrower's credit scores because that tends to be an indicator of how successful a set of borrowers will be at repaying the loan. This shouldn't really be an issue for your for two reasons:

First, lenders really want your business, so if you can get them to quote a below market rate, they'll honor their quote even if it means their branch taking a 1-2% loss on the loan. This is because the legal structure of mortgage banking used to allow individual Loan Officers to have a markup built into your rate, so they could offer you a higher rate for their own gain. A lender could make a lot of money on one loan. However, law has changed and now loan officers are essentially limited in how much compensation they can make on a loan, so the best way to make money in their role is to originate as many loans as possible, because they have the same margin on all of them (as a percentage of the loan amount).

Second, I'm assuming your borrower for a home in Texas. Texas is what's known as a "Community Property State", so you can be the individual borrower on the loan (thereby only using your credit rating), and your spouse, or common-law spouse, will still be on the mortgage Note and Deed of Trust, so if you were to die, your spouse would own the property. Of course, if you were to divorce, you'd both be on the house and ownership would need to be settled by the courts. It goes both ways. So, if it really isn't in your benefit to have your rate impacted by her score, you can just take her off the loan and you'll both still end up on the Note and Deed.

There's also one more thing I should point out on your rate. You'd mentioned the float down option. There is a difference between floating down the rate and renegotiating the rate, although both are typically called float downs, so its hard to distinguish which is which. If I were locking in my rate, I would opt to avoid a "float down option" because this option typically costs an upfront percentage of the loan amount paid as a fee for this option, or an upfront percentage of the rate paid as a fee for the option. You'd want to avoid that because you'll either end up paying for it as part of your closing costs, or the lender will cover the fee by hiking up your rate.

On the other hand, a renegotiation option doesn't cost anything. You go to your Loan Officer on a day in which MBS is moving up and tell them, "Rates have improved today. Can we do anything to improve my rate? It would seem that I can go elsewhere and get a better rate, no?" Your Loan Officer will then proceed to contact their Secondary Marketing department to look into a renegotiation option. If rates have improved, it is in the lenders best interest (because a lender typically pays for a hedge when they lock in your rate, just in case your loan doesn't close) to move your rate closer to current market rates.

However, I wouldn't bank on rates getting lower, so it would be best to lock in now and watch markets for any improvement and to jump on the renegotiation option at the first sign of improvement. Another thing to keep in mind about this, is that many lenders have policies restricting renegotiation (something along the lines of one renegotiation allowed per loan, or the loan must close within [insert timeframe here] if we renegotiate today).

Again, if you have any more questions, let me know and I can assist.

 

Here's today's rate from RMC. Still waiting on another lender for a quote. We are scheduled to close in October.

"We offer 180 day locks with a one-time float down option- ( See attached information about this option that is available to you )

Your rate today on a regular 60 day lock is 4.875% with the cost of .625% discount points.
I can lock your rate today at 5.125% for 180 days with a one-time float down with .625% discount points. – Please confirm if you wish to lock your rate today."

 

Figures they're going back up. Looking into moving, but it wouldn't be for another 11 months at the earliest.

 

Don't really see what the big deal is. Loan owners buy a monthly payment they can afford. If the monthly payment goes up due to increasing interest rates (especially in the face of stagnant/decreasing wages), then how can people continue to afford the heftier costs? Will anyone even be approved for loans at these higher costs?

I feel like prices will eventually have to fall to the equilibrium point unless we truly are inflating another housing bubble. Though, I guess it could take a while to find that equilibrium.

A few other things to take into account:

1.) If the mortgage payment is the same, a lower house price with a higher interest rate means more of your payment can be taken as part of your mortgage interest deduction (provided you are in the 25% of loan owners who are even eligible to take the deduction).

2.) If you buy at a low interest rate and high house price, you really have to hope rates haven't doubled by the time you are ready to sell. Your house value will take a hit and there's nothing you can really do about it, since borrowing money is no longer as cheap as when you bought.

3.) On the flip side, if you buy at a higher (more normal) interest rate, you can always take advantage of lower rates by refinancing later. Plus the value of your home could be increased if interest rates have dropped when you're ready to sell.

4.) Additionally [personal-opinion], higher interest rates reduce mania by taking away some of realtors' best ammunition to whip uneducated people into a frenzy. ("I've never seen rates this low", "Buy now or be priced out forever", etc.). I also feel like low interest rates are something that people who are bad at math use to convince themselves to buy a house or possibly buy more house than they can afford.[/personal-opinion]

Anyway, those are just some things to think about. I'm making some assumptions that mortgage payments have an equilibrium value in which they will always gravitate based more on the economy (wages, employment, etc.) than on interest rates. Then again, who knows. The housing market is so manipulated, it's pretty much impossible to predict where it's headed.

 

About two weeks ago. The rates were still in the 3's. In a weeks time, the rates went up about 1.5%. The biggest jump in the last 26 years. They wont be stopping anytime soon. Expect the 6's to become relevant again. Lock in your rate.

Per every point, your looking at almost a 100$ increase per point per 100$ dollars.

 

Closed last week on Friday, got 4.625% and was sooo happy to get it. 2 weeks ago I could have gotten 3.9 or 4.125% In the end it cost me about $90 on my mortgage.

 

So $32,400 over the life of the loan? That's pretty rough.