Locking mortgage rates between now and year-end
Below is my commentary on MortgageNewsDaily today about the rate lock conundrum in a very volatile rate environment. A link to the full piece is below the excerpt.
The rate lock advisory I’ve had since Monday has served clients well. Rates were higher from July 24 through August 17. During that time, I’d been saying to clients that the next dip would be their opportunity to hit their rate lock targets, but they’d need to act quickly. This scenario has played out this week: Monday and Tuesday were great lock days close to record lows. Yesterday rates went up a bit so we floated, rates are back down today, so we’re back to locking today to capture lows ahead of Bernanke’s policy speech tomorrow. The upside risk is too great, and the chances of rates dropping significantly from current lows are less likely. This lock-on-the-dips approach will remain a theme until year-end: rates will hit lows at miscellaneous intervals each trading day then rise on short bits of U.S. and non U.S. economic optimism. Clients need to set rate targets with their lenders that they can’t or won’t go above, and they need to give their lenders standing order to lock those rates when MBS markets allow.
And what if rates drop after you lock a rate? You can’t just get the lower rate, just like you can’t give back higher priced shares of stock you just bought then purchase lower priced shares if the stock drops. But all lenders have what they call “renegotiation policies” which, in short, usually follow this formula: A renegotiation usually allows for a borrower to capture half of a market rate drop. So if rates dropped by .25% after a rate lock, a borrower might be eligible to renegotiate their locked rate to lower it by .125%. Talk to your lender about their renegotiation policies. They might confuse you with a series of complicated formulas but the endgame is usually what’s described here.
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Reference:
– Mortgage rates recover most of yesterday’s losses ahead of Bernanke (MND)
– Near-term U.S. vs. European Monetary Policy (David Kotok, TheBigPicture)
– Refi Roadmap: A Locked Rate Isn’t A Closed Loan (MND)