Interest Rate Lock-in Options

There may be several options available for interest rate lock-ins. For example:

LOCKED-IN INTEREST RATE AND LOCKED-IN POINTS:
This allows you to lock in both the interest rate and points quoted to you. In this "true" lock-in, your interest rate should not increase above the market interest rate and points that you've agreed upon even if the market conditions change.

FLOATING INTEREST RATE:
This allows you to lock in the interest rate and the points later on, after the application, but before closing. If you think that rates are stable or may even go down, you may want to wait on locking in a specific rate and points. But, if rates go up, then you would expect to be charged a higher rate.

TIME PERIODS:
There may be other options available to you as well and there are a variety of time periods for the lock-in of interest rates. Typically, the lender will hold a certain interest rate and number of points for a specific number of days (lock-ins of 30 to 60 days are common). In order to get the locked rate, you must settle on the loan in that specific time period. As a general rule, the longer the time period, the higher the fee. Before you decide on a locked-in rate, find out the estimated time for processing your loan. If the lock-in period expires before closing, you might lose the interest rate and the number of points. If market conditions have caused interest rates to rise, most lenders will charge you more for your loan. (One reason why some lenders may be unable to offer the lock-in rate after the period expires is that they can no longer sell the loan to investors at the lock-in rate.)

How to Lock-in Your Rate

Rates fluctuate daily and are generally affected by the overall economy. Factors such as the stock market, inflation and unemployment have a large impact on the rate. A good web-site to watch for these conditions is www.cnnfn.com. Rates typically come out daily by 10 AM and may vary from lender to lender. Lock in times are anywhere from 9:30 AM to 2:30 PM. You may lock in your interest rate anytime on a refinance. However, you must have a signed Earnest Money Agreement in order to lock on a purchase transaction. To lock, simply call my direct line at (503) 709-1731. Floating your rate is basically a form of gambling. You could win or you could lose. Therefore, I generally recommend that the majority of my clients lock in their rate as soon as possible. While your file is one of my top concerns, it is important to realize that I am often dealing with as many as 50 files at once. Therefore, you will need to take responsibility for your lock. If you do not understand the market, or need additional assistance, please let me know as soon as possible, so I can provide special assistance with the lock-in process.



PMI: Private Mortgage Insurance

Effective July 29, 1999, the Homeowners Protection Act of 1998 was put into place. This act applies to single-family primary-residence mortgages and allows cancellation of Private Mortgage Insurance (PMI) under certain conditions.Private mortgage insurance must automatically be canceled by your lender when your mortgage balance is 78% of your home's original value and you are current on your payments. In most cases, after 12 months, you may also send a written request to cancel your PMI when all of the following conditions are met:
  • You are able to submit an appraisal to prove that your mortgage balance is 80% or less of your property value
  • You have a good payment history
  • You have no other loans taken out on your home

When denying a request for mortgage insurance cancellation, lenders must inform borrowers of the reasons why they were denied. If you have paid for PMI in advance at closing, or are currently paying on an annual basis, you are entitled to a refund of the unearned premium on cancellation, which must be transferred to you within 45 days of cancellation notification. The law does not cover piggyback, or 80-10-10 loans, nor does it apply to government mortgage insurance (FHA loans) funded before 1/1/2001. The cancellation provisions of the law also do not apply to lender-paid mortgage insurance. High-risk mortgages are treated separately under the new law. PMI must automatically be cancel at the midpoint of their amortization period as long as payments are current. PMI must be canceled by request when the mortgage balance is paid down to 77% of the original value of the home.

For loans closed before July 29, 1999, borrowers can usually cancel PMI once enough equity is built up in their home. Freddie Mac and Fannie Mae allow automatic cancellation of mortgage insurance once the midpoint of a loan's amortization period is reached.