ENVOY MORTGAGE Blog

How To Pick A Closing Date That’ll Get You Lower Mortgage Rates

Whether you're buying a home or refinancing one, there's lots of ways to make a play for lower mortgage rates or fewer loan fees.

But, sometimes, the easiest way to save money on your mortgage is by picking a better closing date.

It's all about Rate Lock Commitments.

A Rate Lock Commitment is a bank's promise to honor a specific mortgage rate for a specific period of time.  It's a contract, of sorts, in which the lender says: "Provided you close on your loan in the next however-many days, we'll make sure you get your locked rate."

In many respects, a mortgage lender's profitability is linked to its ability to accurately predict what mortgage markets will look like at the end of a Rate Lock Commitment.

It's a dangerous game to predict the future and banks know that the farther into the future they try to predict, the more likely their predictions will be wrong.  It's why longer rate lock commitments tend to carry higher interest rates, higher fees, or both -- banks are purposefully hedging against "time risk".

Rate locks typically come in 15-day increments with the 30-day rate lock serving as the basis for all other pricing:

• 15-day rate lock : Often 1/8 percent lower than the 30-day rate lock
• 30-day rate lock : The basis for all other pricing
• 45-day rate lock : Often 1/8 percent higher than the 30-day rate lock
• 60-day rate lock : Often 1/4 percent higher than the 30-day rate lock

Based on the chart, you can see why choosing a closing date matters.  A simple 1-day difference can lower your mortgage rate by 0.125% -- an annual $380 savings against a $400,000 home loan.

And the math doesn't just apply to purchase mortgages.  It applies to refinances, too.

A refinance that can close in 30 days is going to be better priced, in general, than one that takes 45 days to close.  It's one reason why being responsive to documentation requests is so important -- quicker to process means quicker to close.

Managing a mortgage rate lock commitment is an often-neglected method for keeping mortgage rates and loan fees down -- mostly because homeowners and real estate agents rarely know how to do it, and loan officer rarely talk about it.

So, before choosing a closing date for your pending home purchase, or starting to work on a new refinance, consider the impact of time on your bottom line.  The shorter your rate lock commitment, the more money you're likely to save.

For more information, please call or email me.

Gary Bussard  (314) 993-6690   gbussard@envoymtg.com