So my husband inquired into more information about the rate lock and he got some information back that I was unfamilar with. It is the first time I have heard of this and I just wanted to see if any of you guys have heard of it. Our loan officer told him that if we lock at 60 days and at 3.5 we will receive $1895 off of our closing cost. If we wait to lock at 30 days at which time the rate could be lower and we will not receive any money off of our closing cost.

I am completely confused and wanted to know if any of you guys had heard about this before?

Melissa

Rates and fees change daily, and for some banks several times a day for mortgage rates - meaning that a best execution rate of 3.5% with no closing costs today could be 3.5% charging a point in closing costs tomorrow. The point is your "origination fee" that you will see on your settlement sheet. Rates and fees can change with how long of a lock you are looking for as well. The cheapest locks are 60-90 days, and the "free" locks are typically 30-45 days. I would have asked the loan officer what the rate was without the credit. Your rate very well may have been 3.25% with no fees. Which in essence could save you upwards of $18,000 over the life of the loan. Look at what your payment would be if you took 3.5% vs. 3.25% (or the rate without the credit) and subtract the two and multiply it by 360 payments... is an $1895 credit worth it? The same goes for paying points to buy down your rate. If you pay a point (1% of the loan) to reduce your rate by 1/8 of a percent, at what point during your loan term does it pay for itself?

ReplyDeleteSorry for the lengthy post... mortgages aren't easy to explain :)

Aand M, said it all........exactly,it changes daily several times a day....

ReplyDeleteI think what maybe they were trying to explain is that maybe even if you lock at 60 days and the rates goes up or down, you are locked?? Or if you wait and ask about a rate and then it goes up he cant guarantee the last rate you inquired about, I know that sounds sensless but I think they try to explain it to us different ways and just end up confusing us...

He is correct, a few days ago, we were at 3.5% with 1895 back, exactly what you were offered, so he is completely 100%correct about that.......

Again, I went back and read again.......and I think he is just saying anything can change and its a gamble with rates, that's all

Thanks :) I feel a lot better now. At first the credit thing was news to me. When they offered that I was like so that was already calculated into what is needed at closing right? and he said no. I have to say that made it a lot more entising becuase that means that we could use that extra money for something that we need (I.e. Refrigerator, blindes, celing fans ect).

DeleteAand M is right. So we were originally offered a 3.5 percent rate with $1500 back or a 3.25percent with $0 back. So the higher rate meant we would only spend $34 more per month but when you factor in all 30 years the actual additional cost is $15,900.. So the $1500 on the front end is enticing but not when you consider the total cost. Now if you only plan on living in your home for a few years, you may want to run those numbers with that in mind. You may be better off taking the up front cash.

ReplyDeleteJust FYI....I did not know this. I was taking the difference in the points and multiplying that by the loan amount to find the loss at the higher rate (So 3.5-3.0 * $ of house). I found out from a friend that this is the wrong way of doing it. You are supposed to use the mortgage rate calculator and use each rate and subtract the two to find the difference. For example if we had a $100,000 loan at 3.5% the total payment with interest would be $161,656.09. If it was a 3.25% the total payment with intrest would be $156,674.27 so it is only a $4981.82 difference. In our case it turned out to only be a $6,700 difference. So if you take that and subtract the credit it would cost us $4800 to do the rate lock early. So if it comes down to it I think that we will just take Aand M's advice and do it when the rates look the best. Hopefully this makes since. I had no idea this was the case until a co-worker explained it lol.

DeleteI should also add... it probably isn't a bad time to lock in your rate now... November and December are typically months where interest rates start to rise, and they don't come down again until mid-April. The reason they rise is due to more consumer spending for the holidays, and steady job growth in retail around this time. I am currently BEGGING my loan officer to lock me, but he won't. I might pay out the you know what because he won't let me pay for an extended lock.

ReplyDeleteAll I can say, is keep an eye on the rates, ask your LO everyday what they are and if you see the DOW start to rise significantly, LOCK!

Thanks for your advice M! It really helped me to get a better understanding of what he was talking about :)

DeleteNever knew this! NVR rep has never said anything about this to us! I will be giving her a call tomorrow! :) Thanks for the heads-up!

ReplyDelete