Reasons to Float or Lock

By
Mortgage and Lending 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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Rainer
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David A. Podgursky
Boynton Beach & Lake Worth Florida Real Estate Broker Associ - Boynton Beach, FL
PA

you would want to float because of many factors

there are people who are conservative by nature and want to know for sure that they are getting that rate no matter what

some would rather wait because the market is due some turbulence and they want it to work in their favor

typically, my clients are floaters... few don't want to try to work the system.

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.

If your client is informed and you keep them up on rate fluctuations, then why shouldn't they be allowed to float?

Since when is it  our responsibility to nullify all risk whatsoever for them?? especially when lenders could just fall off the planet in mid-escrow and the loan not be there anyway??

Nov 21, 2007 10:38 AM #1
Rainer
185,141
Matthew Rosov
Amerisave Mortgage Corporation - Laurel, MD
Certified Mortgage Planning Specialist

I agree, David.  Keeping the client informed should allow them to float.

In response to the 2nd question - I'm guessing it was rhetorical as there is no way to nullify all risk and it is our responsiblity to offer the best advice we can give them.

Nov 21, 2007 10:41 AM #2
Rainer
128,954
David A. Podgursky
Boynton Beach & Lake Worth Florida Real Estate Broker Associ - Boynton Beach, FL
PA

I didn't mean to imply it isn't our responsibility to give good advice

I think too many clients think that they're blocking all risk with a rate lock which just isn't the case

but if we float with them and then keep them up on how rates are doing daily then we're in good shape

 

also... I'm hearing a lot of clammor about rate locking due to lenders selling loans directly... they require clients ASK for a rate lock form and fill it out when they want to lock

just another sign of why a Mortgage Broker on your side helps you with your fiducuary needs

Nov 21, 2007 10:51 AM #3
Rainer
185,141
Matthew Rosov
Amerisave Mortgage Corporation - Laurel, MD
Certified Mortgage Planning Specialist
Excellent points - I did not realize that about some lenders do this.  {shakes head} and Congress is getting on the broker's case??
Nov 21, 2007 11:16 AM #4
Rainmaker
200,141
Jennifer Monroe
Savvy + Company Real Estate - Charlotte, NC
Real Estate REALTOR®/Broker in Beautiful Charlotte
I'm surprised by anyone who doesn't understand the importance of your daily recommendations Andrew. Besides, i wanted to stop by and wish you and yours a VERY HAPPY THANKSGIVING!!!
Nov 21, 2007 12:26 PM #5
Rainer
185,141
Matthew Rosov
Amerisave Mortgage Corporation - Laurel, MD
Certified Mortgage Planning Specialist
Thank-you, Jennifer.  btw - this is Matthew! ;-D
Nov 21, 2007 12:37 PM #6
Rainer
13,550
Linda Peters
Salem Five Mortgage Company - York, ME
Matthew, Another excellent post and well laid out.   Most of my borrowers in this market like to lock at time of application but I have a lot of short contracts.   I do a lot of second homes that close in under 30 days.  Call me chicken, but frankly I prefer a client that wants to lock... I hate that feeling of EEEEKKKKK rates just went up and I've got a floater out there.  Even though they have been advised of the risks, they still whine when they can't get back to that original rate.   Someday I will toughen up!
Nov 21, 2007 01:22 PM #7
Rainmaker
200,141
Jennifer Monroe
Savvy + Company Real Estate - Charlotte, NC
Real Estate REALTOR®/Broker in Beautiful Charlotte
ooops! I knew that!!!! You too!
Nov 21, 2007 04:29 PM #8
Anonymous
Anonymous
Rick Grand--Mortgage Broker Eugene, Oregon
I'm glad you wrote this blog...I understood what you were getting at in the blogs but I'm sure many more people had similar questions that you addressed. Yes the payment difference is relatively small but like you said over the life of the loan in can really add up.
Nov 28, 2007 08:10 AM #9
Rainer
88,882
Jimmy McCall
TheHappyCottage.com - Cunningham, TN
The Ex-Mortgage Consultant
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. 
Dec 20, 2007 09:17 PM #10
Anonymous
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.

Oct 19, 2008 09:18 AM #11
Rainer
185,141
Matthew Rosov
Amerisave Mortgage Corporation - Laurel, MD
Certified Mortgage Planning Specialist

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

Oct 19, 2008 08:01 PM #12
Rainer
3,120
Wolfgang Leonard
Jacksonville, FL

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.

Feb 19, 2009 04:00 AM #13
Rainer
135,577
Charlie Gantz
Keller Williams Commercial, Tampa Bay - Saint Petersburg, FL
J.D., M.B.A.

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

Oct 30, 2009 10:04 AM #14
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Matthew Rosov

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