Reasons to Float or Lock

By
Real Estate Mortgage Broker with Amerisave Mortgage Corporation

I have been asked to comment on what floating is and why one should float or lock.

When one applies for a loan a good loan officer or mortgage planner will ask many questions.  How long are you planning on staying in a home?  What are the reasons for wanting a home/loan at this time?  What is important to you about your current lifestyle?  Do you realize how amortization works?  Do you know the difference between a 15 year loan and a 30 year loan? Are you financially savvy and would like an interest only loan and how would you use the difference in money to pay down your mortgage? Etc, etc.

Based on your answers, your mortgage planner will suggest a variety of loans to your and why each is advisable or inadvisable.  Then will be the question - Would you like to lock your rate today?

LockLocking in a rate means that for the next 15, 30 , 45, 60, or 90 days you will have the benefit of that particular rate until you find a house, negotiate the contract, fulfill all the requirements that are needed to get the loan and have the house pass all the various tests that are currently available and negotiated on, and get to the Celebration of signing the documents and getting the keys for your new home. 

During this time period much can happen.  As stated in Should I float? Should I lock? various economic events can take place that will affect interest rates. 

Deciding not to lock means that you would rather float and have rates adjust accordingly each day to the events that unfold in the world.  Why would one want to float?

Let us look at an example of what various rates do to a loan for a particular mortgage.

We will assume a 1st mortgage of $250,000.  (We are not going to worry about LTV, PMI, or a possible 2nd mortgage - those are for another blog)

Interest RateMonthly PaymentDifferenceTotal Paid over life of loan
7.0%$1663.26$598,773
6.75%$1621.50$41.76$583,740
6.5%$1580.17$41.33$568,861
6.25%$1539.29$40.88$554,144
6.0%$1498.88$40.41$539,597

The various gradations appear to be minimal. The greater differences lie in the amount paid over the life of the loan.  If your loan size is bigger or smaller than you can calculate these differences rather easily. 

 

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Tags:
mortgage rates
rates
locking rates
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Rainer
88,720
Jimmy McCall
The Ex-Mortgage Consultant
TheHappyCottage.com
I like the chart you used.  I have use something similar.  Instead of total paid I use total saved over time.  However, my clients tend to float when I have used the chart.  Something for me to consider.  Thank you for your thought provoking blog. 
December 20, 2007 09:17 PM
Anonymous #11
Anonymous
Anonymous

Thank you for posting this. Seeing the difference over time and what it will save you is good. I will have to consider this for my clients.

October 19, 2008 09:18 AM
Rainer
185,141
Matthew Rosov
Certified Mortgage Planning Specialist
Amerisave Mortgage Corporation

Thanks, Kelli.  A good spreadsheet can show this nicely.

October 19, 2008 08:01 PM
Rainer
3,120
Wolfgang Leonard

Boca Raton on 11/21/07 :  "Right now, during the holiday season, we know that there are key indicators that will be released that could spell some bad news.  If so, then we know that rates should drop."

For my continuing education, what bad news from what key indicators should result in a rate drop ? 

 With all the current government intervention in the financial markets, I'm not sure that "shoulds" prevail anymore.

February 19, 2009 04:00 AM
Rainer
135,477
Charlie Gantz
J.D., M.B.A.
Keller Williams Commercial, Tampa Bay

I followed up your other posts with this one from 2007.  Great stuff with lots of good information.  Thanks.  Charlie Gantz, Greenwood, IN; J.D., M.B.A.; owner/principal broker, Atlas Commercial Real Estate, LLC

October 30, 2009 10:04 AM
Anonymous
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Rainer
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Matthew Rosov

Certified Mortgage Planning Specialist
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