Assessing long rate locks - would appreciate input

bewareNovember 26, 2010

Realize that lending varies by geographic location, but would like some input on our situation.

We are building a new house. Builder finances it entirely, other than the (signficant) sum of money we gave him at contract signing. We'll need a new mortgage when we close in early May. With rates so good right now, we are looking into a long rate lock. The long rate lock periods seem to be 90, 120, 180 days out. It's now about 155 days til we close in May, so we'd be looking at the 180 day lock.

If it matters, we have an excellent credit score, very little debt and we will have about 40% equity in this new house.

I've learned that at least some of the big, national lenders do not offer long rate locks and/or do not do loans on homes under construction.

I've spoken with a few local banks so far, and I learned about one in town that offers the following:

180 day lock. 30 year fixed rate, which today is 4.5%. No points. Rate does not change due to the long lock period. Fee for the lock is 1/2% of the value of the loan. This fee is not refundable. There are other fees associated with the loan that seem pretty standard. I've spoken to a few other local banks and they do not offer as good a deal. They either charge a higher lock fee or the rate is higher than today's rate for a regular lock period.

My question is, does this offer seem like a good one? Wondering if I ought to search long and hard for a better deal. Also wondering if you think it's wiser to wait til closer to closing, e.g. til 120 days out to have a lower lock fee (1/4% vs. 1/2%). I know that requires a crystal ball, but there are some who say rates ought to stay low for at least a few more months. Any comments? Thanks much.

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Hi beware,

As long as we're all guessing... and if my career & market experience give me any potential shavings of an edge (which is always debatable)... I'd probably float into the spring closing.

I could go into a long-ish explanative macro-economic diatribe, but you probably have better thngs to do (like wash the cat or something.) Bottom line, I think that the 3/4% rate increase we got last week was a market whiplash, a belligerent "back-talk" basically, and that despite the political austerity we're looking at globally, the central banks are still going to amp-up the currency printing flood faster than the bond markets will acknowledge inflation.

Of course, I could be wrong in my directional and timing pick (I'm the first to acknowledge I have potentially run out of "rightness" probability, although I continue being correct so far,) but on my own personal mortgage accounts, I remain variable (same as "floating" for you,) and holding off on locking for now.

As for the lock fees, your offered fees are within the norm. Shopping around won't do you any better, as that's only one variable to the mix and the lender can always adjust other variables later.

Dave Donhoff
Leverage Planner

    Bookmark   November 26, 2010 at 7:52PM
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Thanks Dave. We're probably better off waiting til 120 out or less. Just waiting until the 120 day lock would save about $700 in the lock fee for us (1/4% vs. 1/2%). Crossing fingers rates don't go up ....

    Bookmark   November 27, 2010 at 9:01AM
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