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

Are Mortgage Rates Really Lower? It Depends On What Day You Lock.

It's been a wild few months in the mortgage markets and a trying time for mortgage rate shoppers.

Making sure you get the absolute "lowest rate" has never been tougher.  Rates are up.  Then, rates are down.  Rates are up.  Then, rates are down.  Over the past 5 weeks, mortgage rates have carved out a 1.500 percent range.

It's been a stomach-dropping ride for people trying to time a market bottom before locking in a rate and it's all happening because traders can't seem to answer to the most important question on Wall Street right now:

Is the recession ending, or getting worse?

It would seem like a simple yes or no -- there's plenty of available data , after all -- but the data is conflicting.  As soon as we get cause for optimism from one sector of the economy, weak data presents itself somewhere else.

Furthermore, when it comes to predicting the future of the U.S. economy, not all data is created equal.  Unemployment statistics tend to lag, for example, whereas Retail Sales may be more immediate.

So, what's a home buyer or would-be refinancer to make of it all?

Well, first of all, it's important to recognize that markets are moving on momentum and fundamentals right now.  That's a dangerous combination because even the smallest market event could lead to a mortgage rate surge  The other side, of course, is that rates could fall on new news, but mortgage rates usually rise much faster than they fall.

There's an old adage: Mortgage rates take the elevator on the way up, but take the stairs on the way down.

Lately, we've even seen this IRL.  There have been days where rate are up by as much as half-percent as investor flee from the bond market, but when rates recover lower, they seem to be dropping just an eighth of a percent at a time.

Floating your mortgage rate is fine, but given the current market conditions, you may be playing with house money right now and this is as good a time as any to cash in your chips.  All it will take a series of strong earnings from the banks this week and some hotter-than-expected inflation data to push rates back near 6 percent again.

The world moves quickly and mortgage rates do, too.  If you're not already working with a loan officer and are looking for a specific mortgage rate before locking, you may want to participate in my Rate Watch program.  You pick your target interest rate and when it's available on the open market, I'll lock it for you.

Call or  email me directly - I'll take a full loan application from you to keep on file, ready for when rates fall.

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