Mortgage Interest Rate Lock: How Does It Work?

Mortgage Interest Rate Lock: How Does It Work?

– I'm Sean Reynolds, the owner of Summit Properties Northwest and Reynolds and Kline Appraisal. And today I have with me Mr. Dan Chapman from Fairway Independent Mortgage, and we're doing just a quick
question-and-answer session on, we hear all the time,
"locking" an interest rate. What does that mean? So Dan–
– Sure. – What does that mean? – When you lock your rate,
you're locking in that rate for a specific period of time. And so, like I say, you're
going to close your loan inside of 30 days, we
would do a 30-day lock, and you're guaranteed
no worse than that rate. – So you're locking in your
interest rate for your mortgage? – Yep. – That you're going to be getting. – Yep, and you're guaranteed
no worse than that rate.

You can, actually, extend
that lock, if you need to. So there's lock extensions. You can, actually, with
the small possibility that your rate can improve,
even though you've locked it in, but it's no worse than that rate. – And so is there a cost to
locking in a longer period– – Yeah, the more, the longer
the lock, 45, 60, 90 day, the more expensive it
would be to get that rate. The simplest way I can explain
it is, the shorter the lock, the lesser closing cost,
typically on that rate, there is. – Because you are reducing
the risk to the lender of interest rates changing because the longer the
time period this loan goes, the more probability, maybe rates go up. – Right, now it's not a big
difference between a 30-day lock and a 45, it's so minute
that the rate, no points, might be the same that day.

But on a 60-day lock,
it can be a difference. – And how does a buyer actually go about locking their interest rate? – Well, when we get a purchase
contract, or a refinance, some loan officers will get the loan in and just lock it right away. I, obviously, will give my
clients different options because there's different
rates you can get. There could be two or
three different options, and there's different set
of closing costs for each. So we talk about it, and I advise them on, "Hey, it's actually a
really good time to lock," or, "Hey, I'm looking at the market, "I think things might get better, "if you want to wait a little bit, "we can hold off on locking,
we've got some time, "we can save you some money." And then, basically, it's
just a matter of locking it. We hear the term, going along
on that, we hear the term, "floating" the interest rate. – Floating, yeah–
– So– – Floating is, you're not locking upfront once you get the loan, you're waiting.

We would send disclosures out
and get things in process, but we would lock the rate. I've got a couple of loans now that I haven't locked the rate on yet. – Is there a benefit to
locking the rate right up front or a benefit to maybe waiting
longer in the loan process? – Yeah, it just depends what's going on with the mortgage market and rates, and how they're priced
right now, and the economy. It's a lot of factors. If you've got, right now,
if somebody's got a loan and they're going to be closing less than, say, 21 days away, I
would be locking them.

But if they're closing,
or if it's a refinance, and they're looking to maximize
savings as much as possible, then we could float. I subscribe to a service
that talks about that, and gives me recommendations
from an expert on Wall Street. – A lot of this has to do with which way we think
rates are going, and– – Yeah, and they're trending–
– What your predictions are. – They're trending down still. They're trending down for
the most part right now. – Okay. – We will get day-to-day
fluctuations in pricing, just like the price of
Amazon or Facebook stock can change daily, so can rates. But for the most part,
we're not trending up like we were last year this time. We're slowing trending down. – Okay, and so that's a good thing, especially for borrowers. And so you need to have a good loan guy to kind of give you an idea– – Who's in tune with the
market and what's going on and knows when to lock. I don't have a crystal ball, but I have a pretty good gauge on it.

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– Right, and you guys have at
Fairway Independent Mortgage, you guys have some kind
of rate lock program. – Yeah, lock and shop. So lock, shop, and go, technically. And what that means is, if
you get your preapproval done, and then we then send it to get approved, like your loan is approved, and if you haven't found a property yet, so we send it to what's
called a TBD approval, to be determined loan approval.

Underwriting's underwritten it. Then we can then lock
your rate for 90 days, it's no cost up front, all it
is insurance, and it's free. So we lock your rate, it's a little higher than
the current market rate, but it's locked for 90 days, it guarantees you no worse than that rate. So if rates do, for some reason, jump up, you get the lower rate
because you locked it. You're not getting the
current market rate. But, if you find a
contract, say 30 days later, you get a contract on a property,
and you're going to close, we then give you the lower of the two. So market rate, or the rate you locked. – What was it called again? It was lock– – Lock, shop, and go. – Shop, and go. – I just call it lock and shop, but yeah. – That's pretty good. Anything else that you can tell us about locking an interest rate that might be really important for either a real estate broker
that's got a buyer client or the buyer themselves? – You know, if it's new
construction, I get that a lot.

You've got new construction and it's, I've got one right now, it's
closing in, end of July. I haven't locked them yet
because rates are trending down. – So the home is not finished,
it's still being constructed. – Yeah, we're going to close
on that at the end of July. So I haven't locked them yet, but you want to be careful of lock expiration dates if you do. Because I've got one closing here in a few weeks that I've locked.

And it's close to that
expiration, but just make sure, the builders sometimes don't close when they say they're
going to close, and– – [Sean] What? – Sometimes they don't. And so if you've locked
it for say, 60 days, and the builder said they're
going to close on day 61, you might be in trouble. – Right. – Without lock extension. So you might incur a lock extension fee. – Okay. – To extend that. – Okay, so just keep that in mind, and once you've actually locked your rate, have that date in mind. Your real estate broker needs
to have that date in mind. – Yep. – If we extend past that–
– Your borrower needs to know. – We might have to deal. – Everybody needs to know
what's going on in the picture. And make sure that the builder's not going to be too far pushed out. – Okay, very cool. I think we have a better idea
of what that terms means, and what it actually means as
an implication to the buyer who's got a loan in process. – Yep. – All right, well Dan, thanks
so much for explaining that. Again, I'm Sean Reynolds from
Summit Properties Northwest and Reynolds and Kline Appraisal.

Dan Chapman from Fairway
Independent Mortgage. – Thanks for having me.
– Thanks, Dan. (happy electronic music) Here's the Summit difference. We offer an industry high 80/20 split with absolutely zero
fees, a low $10,000 cap, and a free listing video, including drone for every single home that Summit Properties Northwest lists. For more information,
click on the first link in the description of this video..

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