So let’s talk quickly about Rate Lock Commitments.
A Rate Lock Commitment is a bank’s promise to honor a specific mortgage interest rate for a specific period of time. This reflects a lender’s prediction of what mortgage markets will look like at some point in the future.
We live in uncertain times, and banks are skittish, so it follows that the longer the rate lock, the higher the bank’s corresponding interest rate.
Banks must rightfully compensate for “time risk.”
Rate locks typically come in 15-day increments with the 30-day lock serving as the basis for all other pricing. We currently have a Carlsbad first time condo buyer who is looking at the following schedule:
- 15-day rate lock : 1/8 percent lower than the 30-day rate lock
- 30-day rate lock : The basis for all other pricing
- 45-day rate lock : 1/8 percent higher than the 30-day rate lock
- 60-day rate lock : 1/4 percent higher than the 30-day rate loc
These aren’t exact figures, of course. Spreads between rates can (and do) vary from lender-to-lender. On average, though, they’re fairly close. This is why choosing a closing date is so important to your mortgage rate. A 45-day closing may reduce your rate 0.125% versus a 46-day one
With a $250,000 home loan near today’s rates, that could be an annual difference of $236.
So, when negotiating a contract on a home, keep in mind how rate locks work to make sure you get the best rate possible. The shorter the length of your rate lock commitment, the more money you might save long-term.
Our Carlsbad first time home buyer has elected the 15-day lock and is pulling everything together very quickly. Not recommended for San Diego short sales or preforeclosures, though, because most take an eternity to close.–Roberta Murphy