When Should you lock in an interest rate?

I hear this question from my clients all of the time. My answer to them is that they should lock in as soon as they get a fully executed sales contract. That being said, your best rates will come on a 30 day lock, and some contracts these days are pushing closings out for 45 and even 60 days. What do you do then?

You need to bite the bullet and take a slightly higher rate for the added security of the longer rate lock. The reason I suggest this is two fold:

1. You can always float down, or renegotiate, your interest rate before you close. Make sure your lender offers a float down option on your rate locks. There may be a small fee for doing this, but locking in your rate protects you by giving you a worst case scenario. Keep in mind you will only be able to float down if rates have remained stable or have moved lower. This is getting increasingly doubtful in our current market.

2. We are no doubt about to enter a rising rate environment. If you have a 45 or 60 day escrow and hold off locking until you get within 30 or even 15 days of close you are risking a higher rate then if you had done an extended lock. The markets can adjust fast, and by the time your loan officer gets in touch with you to let you know rates are going up, you could end up very disappointed. If you have high debt to income ratios, a higher rate can blow your loan, and at a minimum the loan will need to be processed through underwriting again at the higher rate, adding more time to the process.

I hope this information helps. Check back soon!

Mortgage Rates go from 2010 Lows to 2010 highs in one day!

It is more than a little ironic that I cautioned yesterday about interest rates moving upward and doing so quickly, because it happened yesterday. Across the board (by that I mean conventional, FHA, VA, etc.) rate sheets took a hit of about .375%! That is a HUGE jump in one day. That means if we were quoting 4.875% in the morning, by the afternoon we were quoting 5.25%. I would like to think that this is just a knee jerk reaction to a horrific bond offering yesterday, but I know it is more than likely going to continue. Why did this happen yesterday??

There are several factors. However the likely culprit is a lackluster 5 year bond offering. At 1PM eastern, the Treasury Department auctioned 42 Billion dollars worth of 5 year notes. When our government lacks the cash needed for spending, they must find it from investors (China!). They do this by selling debt such as bonds and t-bills. The success of any auction is always gauged by demand....and there wasn't any! This had investors jumping out of the bond market (which drives mortgage interest rates as Mortgage backed Securities are tied closely to bonds) which drove the prices for Mortgage Backed Securities in the toilet. The less the bonds are worth, the higher rates go to attract buyers. Bad Situation.

IF YOU HAVE BORROWERS WHO HAVE NOT LOCKED, YOU NEED TO ADVISE THEM TO DO SO. With FED support of the mortgage markets ending on 3/31, it is doubtful rates will rebound.

Feel free to comment!

Welcome to My Mortgage Blog!

Thanks for stopping by my new blog. I will update this blog at least every week with information regarding home mortgage rates, new guideline requirements, appraisal issues, unique scenarios, etc. My goal is to educate the real estate community and potential buyers and sellers in all aspects of mortgage financing. It is always important to have a fundamental knowledge of the mortgage markets before entering a real estate transaction. And for all the Realtors out there...we know that every loan you have is unfortunately not as smooth and perfect as the ones we do (wink, wink) and in those cases hopefully you can find some answers here. Once again, thanks for stopping by and I look forward seeing you on the blog. Fill out the poll question to the right and I will use the answers to help fill content!

For now, my first post will be directed towards all of the FENCE SITTERS and agents with FENCE SITTERS in your Rolodex (do people still use Rolodex's?). There are a lot of reason why potential home buyers hesitate in making a decision. Each one of the reasons is very real to the people that are feeling it, and those reasons need to be understood so we can find out if the reason for hesitation is valid. We are in a unique spot right now in that those that hesitate may just price themselves out of the market all together, and here is why:

The main reason has to do with mortgage interest rates. The FED is ending their presence in the mortgage secondary market. This secondary market is where mortgage backed securities (Large bundles of mortgage loans) are sold. This market used to be filled with Pension Funds, Hedge Funds, private investors, etc. Once the market collapsed, everyone left the mortgage secondary due to increased risk. That is when the government stepped in last year and dedicated 1.25 TRILLION dollars towards the future purchase of mortgages. The prices these mortgage fetch on the secondary is what drives current mortgage rates. Because the FED has been paying above market prices for these securities,rates have been artificially low over the last 12 months. The 1.25 Trillion is expected to run out at the end of March, and according to the FHA commissioner, a "healthy" increase in rates overnight will be half to three quarters of a percentage. Any more than that, and you may see the FED re enter, but for now they are out. Make no mistake, we will be entering a rising rate environment. TAKE ADVANTAGE OF RATES YOU WILL NEVER HAVE TO REFINANCE. Once the FED exits the secondary will be filled with private investors who demand much more return for their money, which means higher rates.

Also, the tax credit is set to expire. If you are not under contract by April 30Th you miss out on $8,000 from the federal government. This is not an 8K tax deduction, this is a credit. It is a free 8K back to you! This can replenish most borrowers down payments in our current market. This program WILL NOT be extended.

Check back soon!