Author Topic: Purchase loan long term rate lock questions and answers.  (Read 637 times)

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Offline Soylent Green Is People

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Purchase loan long term rate lock questions and answers.
« on: May 18, 2021, 09:44:55 AM »
I've been getting more questions lately about how long term rate locks work - their benefits and their processes - so a post seems to be in order.

Generally speaking for a Conforming High Balance loan or a Jumbo Non-Conforming purchase loan, you'll see rates on average at 3.0% for zero points. These terms are for loans closing in 45 to 60 days. This means if your builder isn't delivering your home until December it's going to be a nervous few months before you can lock a low rate in mid-November - 45 to 60 days from delivery. A .50 bump in rates on a $1m loan means $275 more per month. What if the bump in rate is .75? What if there's NO bump in rates?  A long term rate lock (LTRL) could give peace of mind when viewing these questions - but the cost may outweigh the benefits. Here's how most LTRL work:

1) If the present rate is 3.0 at zero points, please be aware this is NOT the rate you are going to lock. LTRL's are not necessarily a question of how low your initial rate is, but what the costs and add ons are when you protect a rate for 180 days.

2) Lenders scale their LTRL price impacts by varying degrees. For some, if today's rate is 3.00% for a 60 day lock, a 120 day lock starts at 3.125. For a 180 day lock, the rate may be 3.25%. It's reasonable to assume for every 60 day time period added, the base rate is pushed up by .125%. YMMV by lender.

3) LTRL providers require a non-refundable lock deposit for any lock over 60 days. Some lenders charge as little as $500, but others the fee can be as much as .50 points or more. Is it worth it? On a $1m loan, .50 is $5,000. If rates do rise by .50% you've protected yourself from a $275 increase in your payment. The lock expense then is "paid for" in 18 payments. In my view, in this case it would have been worth it to transact a LTRL.

4) The LTRL deposit paid is non-refundable if you cancel your purchase or close with another lender. That said, the deposit you paid for the LTRL is in many cases refunded at closing, or applied to buying down your rate. In some cases if you are relocated by the company or fired from your present job, the deposits may be refunded to you.

5) Float downs. ALWAYS READ THE LENDERS FINE PRINT IN THE LTRL AGREEMENT. DO NOT TAKE A MLO's DESCRIPTION OF THE LTRL "FLOAT DOWN" POLICY. LTRL's for the most part will allow float downs, some all the way up until 30 days prior to closing. The float down are not usually at "best available" 30 day or 15 day pricing but the lenders 60 day pricing. The period when your lock can "float down" is often limited to the last 60 days of your purchase timeline. Example: If your builder is delivering the property in December, and you locked in June, you cannot float down in September if there is a rate dip. The earliest you can float down is late October, early November - 60 days prior to closing. If you float down in December - 30 days before closing, it's still likely to be the lenders 60 day pricing. If there is a rate dip, a buyer could lock with another company in September, but since the purchase isn't closing until December, the new application at a lower rate with another company would be a second LTRL and the costs then might equal your current LTRL with your original lender.

LTRL's are part rate protection and partly a tool to preserve peace of mind as watching daily rate swings during a 5-6 month build cycle can be exhausting. In an upward rate market they can be deal savers keeping the new home payments and lender qualifying ratios fixed. It's anyone's guess where rates will be later this year. No one knows what even tomorrow will bring, and a LTRL isn't for everyone - especially those with a high risk tolerance. Weigh in your own personal scale the costs and benefits to make a decision that best fits your unique situation.

My .02c
 



« Last Edit: May 18, 2021, 02:04:07 PM by Soylent Green Is People »
My .02c

SGIP

Offline Cares

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Re: Purchase loan long term rate lock questions and answers.
« Reply #1 on: May 18, 2021, 09:57:38 AM »
Some lenders also offer long term locks with NO float down option which is less expensive but if you want a float down option it will cost you more to lock it.

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Offline Chegg

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Re: Purchase loan long term rate lock questions and answers.
« Reply #2 on: May 18, 2021, 10:36:45 AM »
Wells has a really good new construction program.  Their extended lock policy is 90 days, no points, I was able to get them to offer 120 days.  I don't think they offer a float down on their extended locks, but again exceptions can be made through your LO.

I'm closing this Friday, I was able to get 2.75% 30 yr, initially on the 120 days, and when treasuries slumped a few weeks ago, the LO got an exception to do a float down that netted me 4K credit towards closing.


Offline Irvinehomeseeker

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Re: Purchase loan long term rate lock questions and answers.
« Reply #3 on: June 07, 2021, 11:25:30 PM »
i am finding that Bank Of America has rate locks upto 270 days. Of course, it comes with costs and .125% increase over todays rates, plus an upfront fee. The upfront fee is applied at the time of closing.

Offline Irvinehomeseeker

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Re: Purchase loan long term rate lock questions and answers.
« Reply #4 on: June 14, 2021, 06:45:09 PM »
I locked a 180 day extended rate for a Jumbo Loan today with BofA...2.93% APR for 30 yr fixed. I am basically seeing this as purchasing an insurance in case rates go up in Jan/feb 2022 time frame. If i am lucky and I catch at the right time with float down period, i may get a lower rate than 2.875. Time will tell....

There is an upfront fee but that will get applied to closing costs.

 

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