Unlike many lenders

Family Mortgage will lock your interest rate as soon as we have agreed to work together. (Click here to see our sample rate lock commitment) Many lenders will require an upfront fee, (an application fee, usually around $350) the application paperwork to be complete and signed, and some even require the appraisal to be complete to lock your rate.. Be wary of companies that won’t protect you upfront. Interest rates change daily and can increase rapidly depending on market circumstances.

To Lock or Not to Lock…That is the Question

The answer to this question is very important and really only can be made by you.  The problem is that deciding when to “LOCK” your interest rate for your loan can be a very confusing decision.  At Family Mortgage, we understand that you want to catch the rate at its lowest point during the time that you’re in the loan process.  However, that is “easier said than done”.  Even professional economists are not able to project the market accurately.  At best, 50% are right and 50% are wrong about future mortgage rates.  We try to help a little with some information and try to help you understand which economic events may affect rates.

The mainstream mortgage market is no longer run or controlled by the banks. Wall Street has replaced the traditional bank and now pulls purse strings of this vast mortgage market via “mortgage backed securities.”  A mortgage backed security (MBS) is simply a bond instrument in which anyone can invest. MBS’s are trading in the free and open market everyday just like stocks and bonds.  The collateral for this investment is a group or “pool” of home mortgages just like the one you will use to finance your home.

The movement of interest rates in the mortgage market is directly related to the buying and selling the MBS’s on Wall Street.  Why do some investors buy and why do some sell at any given point in time?  Well, institutions, money managers, and individuals buy and sill these securities based on their opinion as to whether rates will rise or fall and whether they believe the interest rate paid on the security will give a good return for a long period of time.  From an investors viewpoint, a falling rate may indicate to some a “sell” signal and to others a “buy” signal.  The buying and selling of MBS’s is greatly affected by the investors’ return on the security as they view inflation—now and in the future.  Some investors are more attracted to the MBS market than to the U.S. bond market because the return (yield) on MBS’s is in general higher and the risk is considered no greater.  The mortgage backed security investment is seen as low risk because it is secured by home loans such as yours. 

All investment markets (stocks, bonds, and MBS’s) can realize a period of stability as well as volatility base on the “perception” of these investors and the traders who make the actual transaction in the market place.

An important fact to remember about your decision to “lock or not to lock” is that both your commitment and ours are made on the “good faith” of the participants involved.  We feel that a promise made is a promise kept, regardless of which way the market moves after the transaction is made.  Residential lenders in today’s sophisticated market do not take interest rate risks because the cost is too great.

When you apply for a mortgage loan in order to be guaranteed a rate prior to closing, the lender must first go to the market place and “buy” a commitment or promise to deliver your loan to a mortgage backed securities pool.  To you, our customer, this promise is in response to your wishes to “lock” your interest rate rather than “float”, and our willingness to “buy” your protection.  Of course, all of us consumers would like to be guaranteed the very best rate in an escalating market and also have a low rate offered in a declining market.  Unfortunately, the market cannot provide this assurance in the normal course of business.  If you choose to “float” your rate, you are at the mercy of the market and your interest could improve from the time your application was taken or rise as the market conditions deteriorate.

Please remember that loan officers are professionals in their field and not money managers or financial advisors.  If you choose to lock, we will keep our side of the agreement and deliver the agreed upon rate so you will not have to second-guess your decision.  If you choose to float, please ask other counsel or be your own best market advisor.  You can lock at any time up to but no later than six business days before your closing date.

We hope this brief explanation of a very sophisticated, yet sometimes fickle, free, and open market system and how it affects your mortgage rate will help you in your decision.  Perhaps an old and sage expression will bring more clarity to what we face together.  “The man who lives by the crystal ball must learn to eat glass.”

For more information on current market conditions please feel free to call us at any time. We monitor the mortgage back securities market in “real time” through a subscription service and are able to assist you in making intelligent decisions

Learn about factors that affect interest rates

Home loans can be generally placed into one of four categories; Conventional, Alt-A and Sub Prime and second mortgages/home equity lines of credit. We will briefly touch on what impacts rates for each of these types of loans.

Let’s start with the most common, conventional loans. Fannie Mae and Freddie Mac are quasi governmental agencies that set the guidelines for what is considered a conventional loan. If a loan meets Fannie or Freddie guidelines, then it is a saleable loan that most national lenders lend the money on. Some lenders have their own more restrictive guidelines for different criteria, such as credit scores, but for now let’s keep the discussion simple. Each agency has their own proprietary automated approval system. Once we have your application and pull your credit, the loan is uploaded to this system and it renders an instant approval. If you are approved, you are eligible for the very best interest rates available in the market.

Alt –A loans are those that don’t quite meet Fannie Mae or Freddie Mac guidelines. For example, maybe your debt to income ratio is just slightly higher than what is allowable. These rates will always be higher but not that much higher.

Sub Prime loans are generally those for the credit challenged borrower. Generally these borrowers have credit scores that are lower than what would qualify them for an Alt – A loan. We like to think of them as credit repair loans. You get in for a 1 -2 year period, fix up your credit with our guidance and then you refinance into a lower rate, conventional loan.

Second mortgages or home equity lines of credit are done either to avoid paying PMI (see will I have to pay PMI) or to take out cash later on from the equity that has accumulated in your home. Rates from these loans are always higher because they are in 2nd lien position. This means if the first mortgage lender ever had to foreclose on your loan, the second mortgage lender would likely not recapture the money they lent you. These rates are totally driven by a combination of your credit score and how much you are borrowing against the equity in your home (loan to value ratio).

At this point there are still a few additional items that can either add to the cost of the loan and/or increase your interest rate:

• If you are refinancing and taking cash out, or combining two Loans.
  
  
• The structure of the loan. If you are putting down less than 10% for a down payment, there will be additional cost, or a slightly higher rate will be charged.
  
  
• Credit scores can also negatively impact your rate. Even if you have an approval, most lenders will charge a slightly higher rate if your scores drop below certain thresholds.
  
  
• Paying your own taxes and insurance. If you are putting down at least 20% for a down payment, you are entitled to pay the taxes and homeowners insurance on your own. The bad news is that the lenders will charge a one time .25% discount point fee for the priviledge! I guess they figure that if they can’t earn interest on the money they would have been holding for you in escrow, that they will get it upfront.
  
  
• Interest rate lock period. The longer a period of time you need to lock your interest rate for the higher the rate will be and/or the more upfront money the lender will require for the commitment they are offering. The standard period of time that most mortgages companies will quote a rate lock for is 30 days. But for example, what happens if you just bought a house that you aren’t closing on until 90 days from now? The difference between a 30 and 90 day lock commitment will probably be around a ¼% higher interest rate. In addition, most lenders will charge some type of up front commitment fee for any rate lock longer than 60 days. So, you can either roll the dice and “float” the rate hoping that time is on your side or lock the loan for the long term protection. Family Mortgage has some lenders that allow you to “have your cake and eat it to”. You can lock the rate now and they offer a “Free Float Down” option. When you get within 30 days of closing, if the rates are better (how much better is defined by the individual lenders but generally they must be ¼% better) you can relock at the lower rate for free. Ask us about this special offer if you have a longer term lock need!
  
  
• Rate lock extension fees. If your closing does not take place before the end of the rate lock period, the lender will require some type of extension fee. Each lender has different policies, so it is important to know up front if you think this might be an issue. Where it is most prevalent is in new home construction. If you are building a new home, be sure to give yourself a nice cushion.
  
  
• Stated income or no documentation loans. Because these are higher risk loans, it goes without saying that the rates for these will be higher than a loan that you can provide documentation for. How much higher will be determined by a combination of how much of a down payment you are making and your credit score.

The Internet is an exciting tool that not only puts vast information at your fingertips but expands your shopping options like never before.

Now, with only a few clicks of a mouse, you can go online to buy just about anything you need or want – from airline tickets to rare antiques. But, just as in the bricks and mortar world, the Internet shopping experience can be marred with unscrupulous dealers constantly devising new ways to deceive consumers out of their money.

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The next time you apply for a mortgage or personal loan, you may be asked if you want to buy credit insurance, or it might already be included in your loan proposal. Credit insurance protects the loan on the chance that you can't make your payments. Credit insurance usually is optional, which means you don't have to purchase it from the lender. In fact, the Federal Trade Commission (FTC), the nation's consumer protection agency, says it's against the law for a lender to deceptively include credit insurance (or other optional products) in your loan without your knowledge or permission.

There are four main varieties of credit insurance: Credit life insurance pays off all or some of your loan if you die.Credit disability insurance, also known as accident and health insurance, makes payments on the loan if you become ill or injured and can't work. Involuntary unemployment insurance, also known as involuntary loss of income, makes your loan payments if you lose your job due to no fault of your own, such as a layoff.Credit property insurance protects personal property used to secure the loan if destroyed by events like theft, accident or natural disasters.