Back in January we signed a contract to purchase our house. Shortly after signing the contract we provided the mortgage company with all of our financial information. After reviewing the information and running our credit history, they pre-approved us for a mortgage to purchase the house. The mortgage company provided us with a Good Faith Estimate and Truth In Lending disclosures, but they did not lock in our interest rate. Meaning, during this building process the rate could go down or go up, depending on the market conditions. Luckily, thus far, the interest rate has continued to go down.
We can lock in our interest rate for as long as 60 days, or as short as 15 days. While our interest rate is locked in, it will not change, no matter what happens in the marketplace. The only catch is that you have to close during the locked in period. This could prove to be tricky considering we have had a projected closing ranging from mid-July to the current mid-September goal.
The longer you lock in your interest rate for, the higher the rate. Here are the quotes we received on August 4, 2010:
As you can see, the longer you lock in your rate, the higher the rate. This is a premium for sheltering yourself from changes in the market. In fact, yesterday, the US Federal Reserve (Fed) met. This is an important meeting because the fed can control the fed fund rate (among other things). This rate is the rate banks use to make overnight loans to each other so that they have enough cash on hand to meet the federal reserve requirements. It's important to me because the mortgage rate (and other loan rates) are keyed off of this rate. So, if the fed fund rate goes up, so will my mortage During the meeting the Fed left the fed fund rate at 0 to 0.25%. Consequently, our mortgage rate should not change much either.
There's something psychological about having an APR under 5.00%. So, we decided we would wait to lock in our mortgage rate. Although, in reality the largest difference between the above rates in a mere $70 per year.
We can lock in our interest rate for as long as 60 days, or as short as 15 days. While our interest rate is locked in, it will not change, no matter what happens in the marketplace. The only catch is that you have to close during the locked in period. This could prove to be tricky considering we have had a projected closing ranging from mid-July to the current mid-September goal.
The longer you lock in your interest rate for, the higher the rate. Here are the quotes we received on August 4, 2010:
4.750 % – 60 day lock in option – 5.243% APR
4.625 % – 45 day lock in option – 5.114% APR
4.500 % – 30 day lock in option – 4.982% APR
4.500 % – 30 day lock in option – 4.982% APR
4.500 % – 15 day lock in option – 4.982% APR
As you can see, the longer you lock in your rate, the higher the rate. This is a premium for sheltering yourself from changes in the market. In fact, yesterday, the US Federal Reserve (Fed) met. This is an important meeting because the fed can control the fed fund rate (among other things). This rate is the rate banks use to make overnight loans to each other so that they have enough cash on hand to meet the federal reserve requirements. It's important to me because the mortgage rate (and other loan rates) are keyed off of this rate. So, if the fed fund rate goes up, so will my mortage During the meeting the Fed left the fed fund rate at 0 to 0.25%. Consequently, our mortgage rate should not change much either.
There's something psychological about having an APR under 5.00%. So, we decided we would wait to lock in our mortgage rate. Although, in reality the largest difference between the above rates in a mere $70 per year.
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