Today's Mortgage Rates

One of the more popular questions I am asked recently is “does it cost money to lock your loan?” and the truth is — there is not a right answer.

The reason there isn’t any one answer to this question is because each lender handles loan locks differently. Some lenders lock you early in the process before sending you the initial disclosures and charge a fee that appears to be a “lock fee” but is really a “commitment fee”. The normal “commitment fee” is somewhere between $300 and $600 from what I have seen.

The lenders who I have seen charge a “commitment fee” are typically large, national lenders who have call centers and your loan officer is really a call center employee who only locks you in and then lets someone else take over your file once locked.

Some lenders don’t charge a fee at all to lock your loan – these are typically traditional mortgage shops where the loan officer is a true outside sales person and is generally a professional who is being a loan officer as a career. Most often, these lenders will have you complete the initial disclosures and then once completed, they will work with you to decide the optimal time for you to lock in at the lowest possible rate.

Typically when you lock – the initial lock period will be for 15, 30 or 45 days. Each lender has different lock possibilities, but these are the general timeframes that lenders offer for locking. Unless your file is already through underwriting, I would caution you about locking for 15 days — turn times are usually just not short enough for you to get your file done in less time.

IF — you get to the point where your lock is about to expire, then it is usually possible to extend the lock – at a fee. Who pays the fee — you or the loan officer? From what I have seen — usually the loan officer will pay the fee and take it out of his commission – but if the lock is going to expire because you were late getting something needed to complete the loan, be ready for the loan officer to ask you to pay it.

A typical lock extension costs about .25% of your loan for a 15 day extension — but again, this amount will vary by lender.

So back to the original question: does it cost money to lock a loan? It depends on the lender and yes, it usually costs money to extend the lock on a loan no matter who you are working with.

Many people when shopping for a mortgage ask me “does it make sense to pay discount points and buy that rate down even lower?” and recently, it seems to have been asked of me more often than I normally see that question. It seems kind of odd because rates are still bouncing around historic lows – but for some reason, people seem to be more interested than they usually are.

Should you pay discount points and buy your rate down even lower than rates are today?

It depends.

Discount Points – How They Work

Quite simply, discount points are paid up front by the borrower in exchange for a lower interest rate. Exactly how much you pay up front and how much lower the rate that you get is somewhat negotiable. I use “somewhat” because it really does depend on a number of factors – and the factors usually change all of the time… but in general, there is a simple rule-of-thumb to use when paying discount points.

Discount Points – A Simple Rule of Thumb

While not *exactly* accurate, the general rule of thumb is that for every 1% of the loan amount – or every 1 discount point that is paid up front, the rate will drop .25%.

So as an example, if you wanted to borrow $200,000 and the par rate for a 30 year fixed rate loan was 5%, in order to get it down to a 4.75% rate, it would cost roughly 1 discount point or $2,000 up front.

So using the example of a $200,000 loan, if you paid one discount point, here is what the math would look like:

$200,000 x 5% = $1,073.64 monthly payment

$200,000 x 4.75% = 1,043.29 monthly payment

Difference in monthly payment = $30.35 each month or $364.20/year

Break-even = around 6 years.

Discount Points – When They Make Sense

Getting out our common-sense-back-of-the-napkin-calculator, in the above example, you could argue that paying a discount point may make sense if you planned on having the loan longer than 6 years.

Generally speaking, the longer that you plan to have the loan, the more sense it may make to buy the rate down. If you are moving into the home of your dreams and planning on staying there for 30 years – then it may be a wise option to pay a discount point – or maybe even two!

Discount Points – How To Get Them Paid By Someone Else!

In today’s real estate market, I often see sellers willing to contribute money towards closing costs as an incentive for buyers. When negotiating the purchase of a home, it makes the absolute most sense of all if you can get the seller to pay a discount point to buy your rate down because it then effectively becomes “free” to you and it can help lower your mortgage payment by hundreds of dollars each year!

Whether or not you should pay a discount point is really a case by case situation. Because every lender’s rate sheets look different every day, the 1 discount point = .25% lower rate rule of thumb is helpful – but often times you can get even a much better deal than that. The key is to start the conversation with your loan officer by asking the question…

“Does it make any sense in my situation to pay a discount point?”

In this day and age, people get bad credit histories for all sorts of unforeseen reasons, apart from the old standard of living above one’s means. I know several people who have got into difficulties through either redundancy, prolonged illness or a car accident, divorce, or in fact one luckless fellow had all three situations arise.

Is it possible to get a loan even with a bad credit mortgage? In today’s mortgage and loan trends, a bad credit mortgage is absolutely possible.

In the past, applying for a loan involves a thorough check up on your credit history and income background. With the world wide web, it is virtually impossible to hide any defaults. If your history is less than perfect or if your income is not that high or both, then your application for a loan is instantly rejected. This practice limits the number of people who can apply for a loan.

Today’s market has adopted more flexible methods. Bad credit mortgages makes it possible for people with low credit scores to still apply for a loan and get approved.

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