When should you lock in a loan? Is there a “best time”? What happens if rates go down after you’ve locked? What if you change the loan package from 30 years to 15 years? There are consequences for changing your mind after you’ve locked in a loan, and maybe it’s not worth a switch. As it turns out you are able to switch the type of loan package you want even if you’ve already locked, the lender just goes back to the day you said “Lock in my loan” and looks at the rate for the 15 year loan instead of the 30 year you initially locked with. So whatever the rates where the day you tell your mortgage broker “Lock my loan” those are the rates they use. Rates can change daily so your initial quote from a broker might vary slightly, good or bad, depending on getting in your loan application and when you are ready to lock in.
To learn more contact Arizona mortgage broker, Mike Goblet with United Mortgage Financial Group, Inc. at 408-503-3533 or visit us online at http://www.arizonamortgagenews.com
Matt O’Brien: Welcome back to another segment of Arizona Mortgage News. We’re here with our local expert, Mike Goblet of United Mortgage and Financial Group. Good morning, Mike.
Mike Goblet: Good morning, Matt. How are you this morning?
Matt: Fantastic.
Mike: Great.
Matt: Sounds like we’re going to talk about what’s involved in locking a loan.
Mike: One of the other 10 things you really need to know about the mortgage process, locking is obviously an interesting part of that a lot of people feel that when they go to a bank, or they call me and they say, “Where are our rates?” and I give them a quote based upon the generalized information I have.
A lot of people think, “Well, that’s the rate. That’s what they will get.” The answer is only maybe.
Matt: Why is that?
Mike: It’s for several reasons. One, as everyone knows or I think as most people know, rates can change. As a matter of fact, they can change many times within the day. That’s not unusual. In either direction, better or worse, because they’re tied to the stock market.
Until I really take, myself, or a bank takes a complete application, runs the credit, you really aren’t giving anybody an accurate quote. Even then, until the person says, “Lock in that rate,” you’re floated which meaning you’re subject to whatever is happening to the stock market in rates at that moment in time.
I’ve tried to lock people who said, “Go ahead and lock,” and the lender’s locking desk was closed because of a rate change in either direction.
Matt: I see.
Mike: Until you say, “Lock that loan,” and until the loan officer is able to complete that, your rate is floating and subject to the market circumstances.
Now, that being said, the locking process is actually pretty simple. All I really need is the person’s permission to lock, or acknowledgement that’s what they want to do. I don’t need all the documentation to have received it in order to lock.
I can lock with somebody as soon as they say, “Lock in that rate,” and I’ve completed the application.
Matt: What happens if the rate goes down after you lock in and complete the application?
Mike: There’s two things. Once when you lock, it’s important to understand you’ve locked in to that moment in time of wherever any rates are.
That becomes important because a lot of people going through the process will say they start out with a 15year, or even a 30year then want to switch to a 20, or back to a 30, or whatever. What happens is the loan officer goes back to that time and date when the loan was locked and that’s where they get that information.
Even if you changed terms during the process, you’re still locked in to whatever was going on at that point.
Now, to answer specifically your question, what rates drop? A lock means just what a lock means. You’re locked in to that time and date, whether rates go up or rates go down.
There’s a caveat to that and I’m sure many people have heard, “Well, my bank said I could float down if rates get better.” The answer is those programs exist but they’re not without guidelines and cost, as a matter of fact, whether they’re built in to the initial rate, meaning you start out at a higher rate and it lets you float down to a certain level.
Most of what the industry calls floatdowns mean that the parameters are you need to be changing the rate at least the quarter of a percent from where you locked that and that it has an adjustment or a cost of 0.375 percent of whatever the loan amount is. For example, on a $200,000 loan, that’s a $750 adjustment.
Now, when you look at those two caveats, the situation being you really need a dramatic market change, not just some improve in the rates, to take advantage of the floatdown. The type of change that generally never happens within a 30, or 45day period. It happens over along the period of time. The reality of a floatdown is really seldom viable.
Now, it becomes a question as well as what’s your commitment now that you’re locked? In terms of the client, there really is no real commitment. When a loan officer locks somebody, it’s on the good faith belief that that person is going to proceed with the loan.
If that person locks away from a locked loan, there’s no real consequence to that client. There’s no charge that can or should be assessed against that client. There’s no obligation when you lock a loan to continue with it.
If rates do improve and you decide it’s to your benefit to change lenders within the process, you can do that without consequence. That being said, the loan officer does make a commitment. When we do that, we tell our bank or lender, “We’re going to provide you this loan. You’re going to tie up your money until we complete it.”
The bank takes that seriously because you’re tying up their money. People like myself, loan officers and companies that work through those banks, have the commitment of what they call fallout that if we provide too many loans, that fallout don’t go to completion, some lenders will drop those banks, or loan officers, or mortgage companies.
If their fallout becomes to great or maybe they won’t let them lock until all the paper work is in, there’s different consequences, but there are consequences.
Matt: Very good. As in life, there are consequences.
Mike: My real situation that I say just to client is when you lock, don’t look back. If you took a bird in the hand and that should be your real decision, you’re pretty happy with what you got, it was a good program, take it and only look forward, don’t look back.
Matt: Makes sense.
Mike: Finally, when your loan officer has locked you in, they should be sending you what’s called the locked GFE which, by the way, starting next week, that becomes something different called the loan estimate due to the changes in what’s called TRID which I will talk about in the next series.
Starting next week, there are major changes both to what used to be called the good faith and the closing documents that you sign that used to be called the HUD settlement statement. That’s for another day.
Matt: It looks like I got some funky thing going on here. I didn’t realized that that was going on.
Mike: If you didn’t. I thought you were trying to make me smile. You were very successful.
Matt: As always, great segment, Mike. For those that want to get in touch with you, what is the best way to get in touch?
Mike: You can call me at the office at (480)503-3533, call my cellphone directly at (480)220-2329, or you can email me at mike.goblet, at our company initials, @umfginc.com.
Matt: We look forward to you on the next segment, Mike. Thanks for sharing your wisdom.
Mike: I do too. I hope everybody will come back to learn what the changes that are being imposed on the mortgage industry, the consequences it will mean. By the way, like almost anything the government does, they’ll be good sides and bad sides to it.
Matt: As always. Have a great day, Mike.
Mike: You too. Talk to you soon.
