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What Is A Rate Lock?
Mortgage rates change constantly through an unpredictable combination of government policies and economic conditions. This video explains the common term ‘rate lock.’
A “Rate Lock” is a guarantee that a lender will honor a specific combination of interest rates and points for a given period of time. A lock protects a buyer from rate increases but commits them to a higher rate if mortgage rates fall below the locked rate.
As of 2014, rate locks aren’t usually an option until a purchase offer for a specific property – new-home or resale – has been accepted by the seller. The borrower’s credit score, the loan-to-value ratio property type, location and other factors plus, of course, market rates and market conditions will also affect rate-lock decisions.
Decide whether to lock or “float” based on your capacity for risk and your best rational knowledge about construction and closing schedules. If your rate lock expires an extension might be available but both you and the lender will be looking at current mortgage rates to decide the best option.
How Can I Determine My Housing Needs Before I Begin The Search?
Like the video shows, your home should fit the way you live, with spaces and features that appeal to the whole family.
Before you begin looking at homes make a list of your priorities – things like location and size.
- Should the house be close to certain schools? your job? to public transportation?
- How large should the house be?
- What type of lot do you prefer?
- What kinds of amenities are you looking for?
Establish a set of minimum requirements and a ‘wish list.” Minimum requirements are things that a house must have for you to consider it while a “wish list” covers things that you’d like to have but that aren’t essential.
What Are Real Estate Commissions?
Like the video says – real estate agents aren’t paid by the hour!They’re paid a percentage of the purchase price in a successful real estate transaction.
When one agent represents the sellers and another represents the buyers the commission is typically split between them.
In the US, real estate commissions are commonly 6% of the transaction usually 3%/3% when split.
No government or industry body sets commission rates. Legally, commission rates ARE negotiable. However, remember that agents only earn their commission on successful sales.
Consider the work you want them to do for you to evaluate the value you should put on the commission they earn.
What Is “Prime”?
The Prime Lending Rate – sometimes just called “Prime” – is the interest rate that banks charge each other for overnight loans. Some consumer rates – like ARMs – are set in relation to Prime.
In the US, Prime is affected by the Federal Reserve lending rate to banks; historically, Prime is about 3 percent above the Fed rate.
The video shows an example.
- The Federal Reserve loans to Bank A at 1%
- Bank A loans to Bank B at 4%
- Both banks – A & B – will recalculate variable-rate loans like ARMs on that 4% Prime figure.
ARM rates are frequently defined as “% above Prime” – that gap is usually called the “margin” or “spread.” Just remember those 3 layers in Prime: Federal Reserve Bank A Bank B And finally, YOUR rate.
How Do I Choose The Right Lender For Me?
There are some great tips in this video. Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction.
Be sure to choose a company that gives helpful advice and that makes you feel comfortable.
A lender that has the authority to approve and process your loan locally is preferable since it will be easier for you to monitor the status of your application and ask questions. Plus, it’s beneficial when the lender knows home values and conditions in the local area.
Do your research, and ask family and friends.
Understanding Your Loan Estimate: Page 2, Loan Costs
Closing costs are fees paid when the title of the property is transferred to the buyer making them the legal owner.
Origination Charges are fees collected by the lender for the loan process. They may including fees for handling the loan application and “Origination Fees”, which are compensation paid by the creditor to the entity that originated your loan.
“Points” are fees paid to lower interest rates; points are considered prepaid interest for the buyer, and are usually tax deductible.
Finally, Underwriting is a payment to the lender for their assessing the risk that the loan might not be repaid, based on the loan specifics and your financial characteristics.