When shopping for a mortgage, you should be aware that mortgage rates change from day to day due to many factors in the economy.Fixed mortgage rates and long term rates, such as bond rates, move in tandem. As a rule of thump, when economic indicators forecast a strong economy, bond prices fall and bond yields rise, long term rates tend to go up. The opposite is true. When the economy is expected to slow down, bond prices rise and bond yields fall, long term rates tend to head down.
Always ask for a rate lock confirmation once your rate is locked so that your mortgage consultant does not ever try to pull the ole "bait and switch" on you when it comes time to close. This is done when the mortgage consultant quotes you a rate and then tells you at the end, at closing or right before, that something happened to the rate lock or the rate when up right before he/she locked your rate in and then at the end, most borrowers will not want to go through the loan process again so they stick with the higher rate and the current proposed mortgage loan. Unfortunately I have heard this story a few times when clients have dealt with some untrustworthy mortgage professionals. However you can avoid this from possibly happening by requesting a rate lock confirmation immediately upon rate lock.
To protect you against interest rate changes your loan officer can lock the rate on your loan. A thirty day lock will normally be included in the price of the loan as quoted. If you need to lock for longer than thirty days you may have to pay a slightly higher origination fee or rate. Some lenders do not allow pre-locks meaning your loan cannot be locked until a complete application and the borrowers documentation is submitted to the lender for underwriting.
When your mortgage professional takes your application and comes back with a rate, if that rate is acceptable to you,, you should lock that rate as soon as possible. The possible frustration and anger from having your rate go up is greater than the possible satisfaction from having your rate go down.
A rate lock is good for a fixed period of time, 15, 30 or 45 days. If the loan has not been closed during the rate lock period the lock is void. Most lenders will allow for rate lock extensions but it will affect the cost of your loan since the broker is charged by the lender for the extension.
When doing a refinance loan the 3 day right of rescission must be considered in the rate lock period, so the closing must happen 3 days prior to the rate lock deadline.
When shopping rates also make sure to get an estimate of closing costs and whether there are points or not. This may explain why a broker will give a rate .5% lower than another.
Market factors and the economy affect the interest rate changes every day. The bond market in particular effects interest rates greatly. Changes in the bond market occur constantly, while the stock market is open, and these changes can have a good or bad impact on the direction the interest rates head in each day.
Interest rates can even change throughout the day with the same lender that is why when rate shopping it is important to compare the same products at the same time. Since rates can fluctuate so often make sure you get more information about the mortgage company, you may find that the service one company provides is much more important than a small difference in rate that could just be a market change.
Keep in mind that if you are a sub prime borrower your lender may not allow you to lock the rate. In this situation your rate will float to close. Meaning the rate of your loan could go up or down depending on the market when you close your loan. Your mortgage broker should keep you updated on rate changes.
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