If you are a gambler, today’s increase in 10 year treasury yields and the subsequent predictable increased interest rates may be just what the doctor ordered. Because today’s increase is now the steepest ever since the last record set on August 13, 2003, gamblers are “in the zone” with heavy speculation about whether future interest rates will come back to their low levels we’ve enjoyed since December 10, 2008, or continue to rise.
If you are not a gambler and one of the many currently in or considering getting in a mortgage lending transaction, this is one of those times where market activity may change your plans.
In An Unfair Advantage I discuss several ways that mortgage lenders lock interest rates. Discussing this today is a bit like closing the barn door after the horses have gotten out but never-the-less an effective conversation. My strong recommendation is read this and call your lender to have them tell you if you are locked or not and if you are, do they have enough control to close your loan before your “better than market rate” will expire:
Locking in the rate
Not an exact science, there are a lot of ways you could lock in your loan interest rate. Here are some useful guidelines:
Rates are locked for different periods of time. The specific period of time has mostly to do with the time required to close the transaction - they could be 15, 30, 45, 60, 120 days or more. Each of these periods carry additional costs as they increase. When locked, over 90% of lenders will not allow any changes to the locked rates up or down, within the lock period. If a transaction extends beyond the lock period, the borrower will likely be charged to extend the rate, 1 week at a time, regardless of who caused the delay. Here is a list of some common practices among lenders for locking the rate:
- Upon loan application when the loan comes in to the lender
- At the request of the borrower any time during the process
- The lender or borrower may want to time the locking of their interest rate with market performance. While not advised, this is a practice that should be left to highly experienced professionals who even then will be correct 75% of the time instead of 50/50 like everyone else.
- At final loan approval since the closing at this point is guaranteed and the cost to lock is the lowest.
If you have not locked your rate at this point or you are preparing to enter a transaction, discuss the impact of today’s market activity on your file with your lender and if it changes your qualifications. Even though this may not be an issue for you since rates will not likely rise more than .25 - .375%, it is still a good conversation to have for you and your lender.
