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Mortgage Rates : To Lock or Not August 20, 2014

Rate Lock
Mortgages: To Lock or Not? Should you pay for an interest-rate guarantee?

Some banks are encouraging home buyers to lock in mortgage rates to guard against rising interest rates; however, borrowers should be cautious: Interest-rate locks often come with fees that can eat into savings and can prove costly if rates go down instead of up.  What exactly are interest Rate Locks?

Rate locks allow home buyers to guarantee a certain interest rate on their mortgage for a specific period of time the most common is 45-30 days. That way, home buyers can plan on a specific monthly payment after they close on their loan. It is one less thing to worry about when buying.

The important thing to know is rate locks are just that, locking the rate and prolonged rates or "float down" programs (they allow you to lower your rate) come at a higher cost.  To begin with, rate locks come at a cost. While many lenders offer free rate locks for as long as 45 or 30 days, the amount of time they typically need to process a mortgage (BTW any good lend should be able to close your loan in 30-days).

To guarantee longer lock periods lenders typically lock in interest rates above the current market rate, often by an eighth to a quarter of a percentage point, depending on the lender and duration of the lock (these can be as long as a year). Longer-term rate locks cost more.

For long term locks, lenders require a "lock deposit", typically from 0.25% to 1% of the total mortgage amount, which is applied toward the home buyers' closing costs or refunded to them after the mortgage is approved. Longer rate locks (up to a year out) could make sense for buyers who are in the process of building a new home and don't want to run the risk of incurring higher rates.

For longer locks be forewarned they typically are at a slightly higher and borrowers who decide not to go ahead with a home purchase and cancel the mortgage application likely will lose that "lock deposit". Lenders that don't require a deposit often charge a cancellation fee that can cost borrowers about the same amount.
To decide whether the costs are worth it, borrowers should first consider what would happen if they didn't lock in their rate.

For some home buyers, rising rates could mean they would only be able to borrow a smaller sum, which could derail the home purchase. On the other hand, home buyers could end up locking in a rate that is higher than the market rate when the purchase is completed.

To address that concern, several lenders allow borrowers to "Float Down" the rate lock and get the lower interest rate, in most cases if rates have declined by at least a quarter of a percentage point. Lenders typically charge for this "Float Down" service as well, either with a fee of around 0.25% of the mortgage amount or by raising the interest rate they lock in by around an eighth of a percentage point.

Another option is to avoid rate locks and, if interest rates rise, consider paying a fee to secure a lower interest rate. Borrowers who pay 1% of the mortgage amount--known as a point--can lower their interest rate by as much as a quarter of a percentage point. The strategy can lead to greater savings than an extended rate lock if the borrower holds the loan for a long period.
 


Realtors: Know your Mortgage Loan Terms! August 27, 2014

Realtor Ninja
Love this information from Realtor.com below is their glossary of terms with links to sites that expand on each of these. This is great stuff!

Welcome to the realtor.com® mortgage terms glossary, featuring 47 frequently-used words and phrases you need to know as a home buyer or a homeowner.

(Some definitions contain additional information, examples and answers to common questions. When available, click on mortgage terms to learn more on realtor.com®.)

Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate.

Amortization: The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.
Average Hourly Earnings: A monthly reading by the Bureau of Labor Statistics of the earnings of hourly plant and non-supervisory workers in the private sector.
Basis Point: One one-hundredth of a percentage point. For example, if mortgage rates fall from 7.50% to 7.47%, then they've declined three basis points. A full percentage point is 100 basis points.
Cash-Out Refi: A refinancing of a mortgage in which the new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%. In other words, the homeowner is taking equity out of the home.
Conforming Mortgage Loan: Any mortgage loan at or below the amount Fannie Mae and Freddie Mac can purchase and/or securitize in the secondary mortgage market.
Construction Loan: A temporary loan used to pay for the building of a house.
Consumer Confidence Index: A measure of confidence households have in the economy. Released monthly by the Conference Board.
Consumer Price Index (CPI): A measurement of the average change in prices paid by consumers for a fixed-market basket of a wide variety of goods and services to determine the underlying rate of inflation. The broadest, and most quoted, CPI figure reflects the average change in the prices paid by urban consumers (about 80% of the U.S. population). The so-called "core CPI" excludes the volatile food and energy sectors.
Conventional Mortgage Loan: Any mortgage loan not guaranteed or insured by the government (typically through FHA or VA programs).
Credit Report: A report of borrowing and repayment history for an individual.
Credit Score: A three-digit number based on an individual's credit report used to indicate credit risk.
Employment (Payroll): The number of non-farm employees on the payrolls of more than 500 private and public industries, issued monthly by the Bureau of Labor Statistics.
Employment Cost Index: A quarterly index used to gauge the change in the cost of civilian labor that includes salaried workers.
Existing Home Sales: Based on the number of closings during a particular month. Because of the one-to-two month period between a signed purchase contract and a closing, existing home sales are more influenced by mortgage rates a month or two earlier than the prevailing mortgage rate during the month of closing.
Fannie Mae and Freddie Mac: The nation's two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others. Due to their directive to serve low-, moderate-, and middle-income families, the GSEs have loan limits on the purchase or securitization of mortgages.
Federal Funds Rate: The rate banks charge each other on overnight loans made between them. These loans are generally made so banks can cover their daily cash flow and reserve requirements. The federal government doesn't actually set the fed funds rate, which is determined by supply and demand of the funds. Instead, it sets a target rate and affects the supply of funds through its own purchases or sales of securities.
Federal Open Market Committee (FOMC): The arm of the Federal Reserve that sets monetary policy, the FOMC is scheduled to meet eight times a year. The 12 members of the FOMC include the seven governors of the Federal Reserve System, the president of the New York Federal Reserve Bank, and, on a rotating basis, four of the presidents from 11 other regional Federal Reserve Banks.
Fixed-Rate Mortgage (FRM): A mortgage loan with an interest rate that does not change over the term of the loan.
Gross Domestic Product (GDP): The value of all the final goods and services produced in the U.S. over a particular period. Available quarterly from the Bureau of Economic Analysis.
Home Equity: The difference between the current value of the house and the amount of money owed on the mortgage.
Home Equity Line of Credit: An open credit line secured by the equity in your home.
Home Equity Loan: A loan that is secured by a home and limited to one lump-sum amount.
Home Improvement Loan: Money lent to a property owner for home repairs and remodeling.
Home Loan: Money provided by a bank or lending institution to pay for a home.
Homeownership Rate: The number of households residing in their own home divided by the total number of households in the U.S. The U.S. Census Bureau releases an estimate of homeownership rate based on a quarterly survey.
House Price Index: A quarterly measure of the change in single-family house prices released by the Office of Federal Housing Enterprise Oversight. The HPI is a repeat sales index, meaning it measures average price changes in repeat sales or refinancings on the same properties, and it is based on mortgages purchased or securitized by Fannie Mae and Freddie Mac. Homes with mortgages above the Fannie/Freddie conforming loan limit and homes insured or guaranteed by the FHA, VA or other federal government entity are not included in the sampling.
Housing Starts: The Census Bureau's monthly count of the number of private residential structures on which construction has started or permits have been issued.
Interest Rate: A measure of the cost of borrowing.
Jumbo Mortgage Loan: A mortgage loan for an amount exceeding the Fannie Mae and Freddie Mac loan limit. Because the two agencies can't purchase the loan from the lender, jumbo loans carry higher interest rate.
Loan-To-Value Ratio (LTV): In a mortgage loan, the amount borrowed relative to the value of the property. An LTV of 80% means the mortgage loan is for 80% of the value of the property, with the borrower making a 20% down payment.
Mean Home Price (of New or Existing Homes Sold): The mathematical average of the prices of all homes sold in the period, typically monthly. The mean price of homes sold generally runs higher than the median price due to the number of very high-priced homes.
Median Home Price (of New or Existing Homes Sold): The median price of all the homes sold within a 30-day period. Median home prices are generally a better indicator of home price trends than average home prices.
Mortgage: A loan lent for the purpose of buying real estate and secured by the real estate.
Mortgage Application Index (Purchase): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the purchase of a home. The survey covers about 40% of all retail residential mortgage transactions.
Mortgage Application Index (Refinance): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the refinancing of a home. The survey covers about 40% of all retail residential mortgage transactions.
Mortgage Broker: A person or company that acts as a mediator between borrowers and lenders.
Mortgage Calculator: An online form that calculates how much a borrower will pay each month for a home loan.
Mortgage Quote: An interest rate offered on a home loan.
Mortgage Rate: The amount of interest charged on money lent for the purchase of a home.
Mortgage RefinancingThe process of taking out a new mortgage with different terms or interest rates. The proceeds are used to pay off the original loan on the same property.
New Home Sales: A survey of builders nationwide by the Census Bureau to determine the number of contracts signed for new home.
Producer Price Index (PPI): A measurement of the average change in the selling prices of goods and services sold by domestic producers and an indicator of inflation. Released monthly by the Bureau of Labor Statistics.
Second Mortgage: A mortgage on real estate which has already been pledged as collateral against another mortgage. Typically used to draw cash from a home for other purposes.
Securitization: The pooling of mortgage loans into a mortgage-backed security. The principal and interest payments from the individual mortgages are paid out to the holders of the MBS security.
Underwriting: The determination of the risk a lender would assume if a particular mortgage loan application is approved.
Unemployment Rate: The percentage of the labor force out of work. To be considered a member of the labor force, an individual must either be employed or actively looking for employment, released by the Bureau of Labor Statistics.
Fannie Mae and Freddie Mac: The nation's two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others. Due to their directive to serve low-, moderate-, and middle-income families, the GSEs have loan limits on the purchase or securitization of mortgages.
Federal Funds Rate: The rate banks charge each other on overnight loans made between them. These loans are generally made so banks can cover their daily cash flow and reserve requirements. The federal government doesn't actually set the fed funds rate, which is determined by supply and demand of the funds. Instead, it sets a target rate and affects the supply of funds through its own purchases or sales of securities.
Federal Open Market Committee (FOMC): The arm of the Federal Reserve that sets monetary policy, the FOMC is scheduled to meet eight times a year. The 12 members of the FOMC include the seven governors of the Federal Reserve System, the president of the New York Federal Reserve Bank, and, on a rotating basis, four of the presidents from 11 other regional Federal Reserve Banks.
Fixed-Rate Mortgage (FRM): A mortgage loan with an interest rate that does not change over the term of the loan.
Gross Domestic Product (GDP): The value of all the final goods and services produced in the U.S. over a particular period. Available quarterly from the Bureau of Economic Analysis.
Home Equity: The difference between the current value of the house and the amount of money owed on the mortgage.
Home Equity Line of Credit: An open credit line secured by the equity in your home.
Home Equity Loan: A loan that is secured by a home and limited to one lump-sum amount.
Home Improvement Loan: Money lent to a property owner for home repairs and remodeling.
Home Loan: Money provided by a bank or lending institution to pay for a home.
Homeownership Rate: The number of households residing in their own home divided by the total number of households in the U.S. The U.S. Census Bureau releases an estimate of homeownership rate based on a quarterly survey.
House Price Index: A quarterly measure of the change in single-family house prices released by the Office of Federal Housing Enterprise Oversight. The HPI is a repeat sales index, meaning it measures average price changes in repeat sales or refinancings on the same properties, and it is based on mortgages purchased or securitized by Fannie Mae and Freddie Mac. Homes with mortgages above the Fannie/Freddie conforming loan limit and homes insured or guaranteed by the FHA, VA or other federal government entity are not included in the sampling.
Housing Starts: The Census Bureau's monthly count of the number of private residential structures on which construction has started or permits have been issued.
Interest Rate: A measure of the cost of borrowing.
Jumbo Mortgage Loan: A mortgage loan for an amount exceeding the Fannie Mae and Freddie Mac loan limit. Because the two agencies can't purchase the loan from the lender, jumbo loans carry higher interest rate.
Loan-To-Value Ratio (LTV): In a mortgage loan, the amount borrowed relative to the value of the property. An LTV of 80% means the mortgage loan is for 80% of the value of the property, with the borrower making a 20% down payment.
Mean Home Price (of New or Existing Homes Sold): The mathematical average of the prices of all homes sold in the period, typically monthly. The mean price of homes sold generally runs higher than the median price due to the number of very high-priced homes.
Median Home Price (of New or Existing Homes Sold): The median price of all the homes sold within a 30-day period. Median home prices are generally a better indicator of home price trends than average home prices.
Mortgage: A loan lent for the purpose of buying real estate and secured by the real estate.
Mortgage Application Index (Purchase): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the purchase of a home. The survey covers about 40% of all retail residential mortgage transactions.
Mortgage Application Index (Refinance): An index published weekly by the Mortgage Bankers Association of America which gauges the number of applications submitted for the refinancing of a home. The survey covers about 40% of all retail residential mortgage transactions.
Mortgage Broker: A person or company that acts as a mediator between borrowers and lenders.
Mortgage Calculator: An online form that calculates how much a borrower will pay each month for a home loan.
Mortgage Quote: An interest rate offered on a home loan.
Mortgage Rate: The amount of interest charged on money lent for the purchase of a home.
Mortgage RefinancingThe process of taking out a new mortgage with different terms or interest rates. The proceeds are used to pay off the original loan on the same property.
New Home Sales: A survey of builders nationwide by the Census Bureau to determine the number of contracts signed for new home.
Producer Price Index (PPI): A measurement of the average change in the selling prices of goods and services sold by domestic producers and an indicator of inflation. Released monthly by the Bureau of Labor Statistics.
Second Mortgage: A mortgage on real estate which has already been pledged as collateral against another mortgage. Typically used to draw cash from a home for other purposes.
Securitization: The pooling of mortgage loans into a mortgage-backed security. The principal and interest payments from the individual mortgages are paid out to the holders of the MBS security.
Underwriting: The determination of the risk a lender would assume if a particular mortgage loan application is approved.
Unemployment Rate: The percentage of the labor force out of work. To be considered a member of the labor force, an individual must either be employed or actively looking for employment, released by the Bureau of Labor Statistics.

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