Friday, July 19, 2013

8 ways to lock in a mortgage rate you can live with

8 ways to lock in a mortgage rate you can live with

Mortgage rates are jumpier than a cat in a room full of rocking chairs. In a single week this month, the average rate on a 30-year fixed-rate loan shot from 4.29% to 4.51% (with 0.8 point). This week, rates averaged 4.37%,Freddie Mac says.

Those numbers matter. At the higher rate, your payment on a $300,000 mortgage would be $1,521. The week before: $39 less. That's $468 a year -- $14,040 more, if you kept the loan for 30 years.

There have been other crazy rate surprises this summer, most of them bad for mortgage shoppers. Blips like these mean that home shoppers get less home for the money. Refinancing homeowners face higher monthly payments. 

You can't stop the mortgage rate ping-pong. But you can maximize your chance at a good rate. Mostly, that involves timing your interest rate lock.

A "rate lock" is your contract with a lender that guarantees you a certain prevailing interest rate. You agree to buy the loan at that rate within a time period -- 60 days, say. The lock lets you nail down a rate, so you're covered if rates rise. (Here's more from If rates drop and you want to exit the agreement early, you stand to lose a fee or deposit.

1. Catch a dip
Avoid locking when rates are on an upswing, says Dale Robyn Siegel, a real-estate attorney and owner of Circle Mortgage Group in Harrison, N.Y. Well, duh. Sure. But can you know if rates will go up?

You can't know for sure. But you can watch rates every day at your bank's website. And MSN Money (at the bottom left of the page) shows whether rates are trending up or down. Even when rates are rising generally, as they are now, they'll probably take a few detours up or down along the way, Siegel says.

The trick is to lock in a dip. Whether you can wait and watch depends on your timing. If you are refinancing, you may have time. If your home purchase is closing soon, you may have to lock now.

2. Don't act on news
Rates react to news. Recent rate jumps, for example, began when traders reportedly worried that the Federal Reserve would slow its bond-buying program, which has helped keep rates low.

After rates shot up they dropped back a bit, points out Perry Harmon, mortgage broker with Financial Strategies Group, in Berkeley, Calif.

Bad news financial news or a major catastrophe in the world can push rates higher temporarily. If possible, wait a bit to lock. Rates may simmer down.

3. Put service first
When shopping for a lender, focus initially on great service, says Siegel. Collect recommendations from friends, colleagues and family. Interview several of the lenders. Tell them your approximate credit score and any problems that could affect your application -- bankruptcy, for example, or a short sale, or credit problems. But don't allow them make credit score inquiries. Wait until you've selected a lender. Too many inquiries could drive down your score.

After you've found two or three good lenders, then compare their rates to help choose, Siegel advises. Ultimately, though, good advice from a smart, expertise of a great broker or lender's representative might get you the best rate.

4. Ask about a 'float down'
Some lenders offer a "float down," a rate-lock provision that offers you the chance at a lower rate if prevailing rates drop after you've locked. These contracts vary and they cost extra.

5. Know your limit
Identify the highest rate you can afford. Use a mortgage calculator (here's one, at MSN Money) to find the monthly payment at various interest rates.

Maybe it's 4.75%, for instance. If rates go any higher, your monthly payments would be too expensive. When rates approach your limit, you'll know it's time to lock or drop out of the game.

6. Be ready to pounce
Be prepared to pounce when rates dip, says Harmon. Do that by clearing away obstacles as they arise. If your mortgage banker, broker or lender wants a document or piece of information, get it to them as quickly as possible, Harmon says.

7. Buy a shorter lock
The shorter your lock period, the smaller your lock fees. Most borrowers now lock for 45 or 30 days, so the rate guarantee won't expire before the loan is processed, says Harmon. On a $300,000 mortgage, a 30-day lock costs about $540 less than a 45-day lock, he says.

Other factors may trump the rate-lock timing. If rates are trending up, for instance, you may need to lock quickly, even if you need a long lock. But ideally, wait until your appraiser has delivered his report to the lender and the loan processing is nearly complete. A 15-day lock could save you $960 compared with a 45-day lock, Harmon says.

8. Chill a little
These numbers matter, but only to a point. Obsessing over tiny rate increases that actually mean just $10 or $25 more or less a month could cause you to lose a good rate.

Don't try for bragging rights among your friends over who got the lowest rate. Relax, says Harmon. "It's not worth the worry."