Locking Mortgage Interest Rates: Exploring Your Options!

hey guys welcome back to another week of mortgage matters and minutes again I'm your host Brent Rasmussen owner of mortgage Specialists so today we've had a few questions just because markets ever change up and down and with markets changing so do mortgage interest rates and that's what we generally want to speak about here today is what are my options for locking in a mortgage interest rate and there's lots of uh variables there's lots of different decisions to be made there's lots of choices to be had so today we're going to go through that it isn't as um complicated as you may seem uh to think it is but there are different options that you might not be sure of so first of all what is locking a mortgage interest rate mean basically what locking a mortgage interest rate is is you tell the lender I want to lock in that rate it guarantees that rate for a certain time frame and that's the biggest I think misnomer that people don't understand is that you get that rate for a specific time frame they're not going to lock the rate indefinitely uh they're not going to lock the rate generally long term it's going to be a shorter period of time anywhere from 15 to 60 days but why do people want to lock in and straight because they're worried that they might go up um and so you want the best interest rate obviously everyone wants the best interest rate to make that happen for them and so by locking it in it guarantees that you know what your payment is going to be because your payment is based upon the interest rate so now that we understand a little bit about what locking a rate is and why people would do it the easiest way I describe to people is locking is very similar as purchasing a product whether you're buying gas at the store whether you're buying a stock whether you're going to the grocery store and purchasing asparagus whatever the case may be once you purchase that item it's yours at that price uh there's no going back generally in renegotiating or changing the price or that amount which is the exact same thing that locking and entry does once you lock it's confirming that you have purchased that rate for that amount whatever that amount is whether it costs you nothing whether it costs you some money or whether it gives you money back for a particular rate so let's talk about what are the factors that affect your interest rate there are many things obviously the most important factor that determines your interest rate is your credit score uh the higher the credit score the cheaper the rate is uh loan amounts do make a difference whether you're borrowing fifty thousand dollars or five hundred thousand dollars generally uh lending companies and or the whole secondary market system makes income based on a percentage of the loan size so even though people would say hey I'm putting a large down payment down your smaller loan size might not be as good of interest rate as a larger loan size would be also what we use the terminology to be is loan to value the amount of down payment you put again if you put five percent down versus forty percent down that's different in interest rates and every five percent down increment may give you a different interest rate depending on your loan amount where you're located and also the credit score so we Factor all these things into a chart which then gives you where the quote for the interest rate is and this is why it does get complicated because there's no such thing anymore as a going interest rate everybody depends on the type of loan that they're doing the down payment their credit score um and the type of property makes a difference whether it's your primary residence or it's a secondary home or it's an investment property also the time frame how you long you lock makes a difference and the market conditions meaning there could be some crazy things going on in the financial markets that are just artificially affecting mortgage rates at that time but we also plug all of that factor into what's called a pricing engine and it gives us what the risk factor is and that's what your interest rate is is how risky or how non-risky you are as a borrower and we're going to reward you or um you know discipline you for where your credits and all these scenarios are put together the arbitrary it's not discriminatory it's the same for all individuals we all play by the same interest rates and numbers whether you are this type of person or that type of person we want to make sure that we're not discriminating against different kind of race ethnicity national origin sex things like that so because of it again once we look at all the factors equally you would get the same rate no matter where you have going on so now we understand a little bit about how rates are based and what locking options are I will tell you that you can lock your loan for 15 days 30 days 45 days 60 days and so on and so forth generally every 15 to 30 days all the way out until um you know 270 days which is nine months all the way out to a year depending on the lender and what the time frame is going on in the Market at that point in time so why is it so important to know that because the shorter you lock the time frame generally the better interest rates they are because what the markets are always going to assume is long-term things are going to be worse than they are today so if you're locking a loan for 90 days versus locking your rate for 15 days the 90-day lock is either going to cost you more money uh or it's going to give you a higher interest rate we're a 15 day obviously is the cheapest you can do but what the negative here is is if you have a long closing do you wait it out and see if rates get better or do you just take what's available in locking and that's what a good mortgage loan originator would do for you is give you the facts give you what's going on the markets giving you the best information they can to have you make your best decision on when to lock it in straight it's different every day I can tell you here at mortgage Specialists we subscribe to many services that's all they give us is financial information of what's going on with the markets so we can be educated on giving you education to give you the best answer of what to do a lot of times clients ask what would I do Brent if you were in this boat and I would say this or that depending on what I know is going on with trading of mortgage-backed Securities the entire financial markets things like that so a little bit about the time frames it can cost money additional to lock depending on the time frame whether you want to look at locking for a year or six months or even 90 days it could cost you additional monies or obviously they give you a higher interest rate the biggest question people always ask about is can I float down my interest rate they hear about this they read about it online but a float down generally is going to come with a cost and what is a float down option first of all it's an option that one time after you lock you can choose to take a lower interest rate than what you locked in so for that feature they're going to charge you the money to do that it's no different than you going to the grocery store and say hey I bought this or I bought these this shirt at the clothing store or whatever the case is they're not just going to give you a cheaper rate or cheaper payment or cheaper amount down the road they're going to charge you for that risk or that scenario that could happen saying hey you can pay for this insurance policy and if you pay for this insurance policy or take this higher rate which is still money that's being paid and you can get that option to float down your interest rate so that's a big one that's discussed I would tell you it generally never uh happens uh on a regular basis that people want to float down and pay the money uh to do so so really all locking is doing is giving your word that you want to move forward you want that interest rate and we as mortgage lenders will lock down that money and guarantee you uh that rate until closing but the biggest question you always have to figure out is how much time do you need to make that loan uh work meaning how much time frame do we need before you're able to close and that's what a lock really does is make sure your lock your rate through closing well some factors that can cause issues here are what if my closing is delayed what if my new build construction home isn't done in time and that's a problem if our lock expires you have to reevaluate and state either take the worst case pricing on rates or you might have to pay extra money to keep that particular interest rate because in the back room what we don't always understand is that the lenders are playing this insurance game of their investing money on both sides of it so they can assure they can give you that interest rate at the end of the day as well too so how do you really get a lock you really communicate with your mortgage lender I would always tell you put it in writing so you have it documented or if you did have a phone call with your mortgage originator you know write it down that you chatted about this so you have something documented I can tell you every so often we get calls that someone forgot to lock in that are interest rated a different company and I was very upset because rates have changed I can share here that we've never had that happen because if we do make that mistake at mortgage Specialists we will still honor that particular interest rate and pay whatever it takes to get you to that uh rate and we have had that happen just due to human error uh thankfully it wasn't large sums of money but it could be depending on how fluctuating the markets are hopefully here in 2023 we'll start to see rates come down and it'll be more beneficial for consumers to lock in a new interest rate on a refinance and be able to close on that transaction to get that future interest rate for a long term I know this was a longer video I hope you understand a little bit more about what locking entails what are your options available to you but we're always here a phone call away at mortgage specialists at 402-991-5153 or you can check us out on our website at MTG Dash specialists.com we hope you have a great day this is our 95th episode of mortgage matters in minutes and we're counting down to the 100th episode we hope you've learned as much as we enjoy giving the information out I hope you've enjoyed learning as much as possible about the mortgage and real estate industry have a great day [Music] mortgage Specialists driven trusted reliable