MORTGAGES

LOCK OR FLOAT?

Rates and points fluctuate daily. Many events in the news, releases of financial information from the government, stock market movements, and other things can determine whether interest rates go up, down or stay relatively stable.

Some home buyers, to protect themselves from higher interest rates or points, will instruct the lender to "lock" their loan at a specific rate for 15, 30, 45, 60, 90, 120 or 180 days. Some lenders will even lock a rate in for 9 months. This feature can be helpful if you are buying new construction and you believe your home may not be completed within six months.

Loan locks are quite similar to points when it comes to fees. Lenders offer one rate for a 30 day lock and another rate for a 60, 90, day lock.

Example:

A 30 year Conventional Jumbo loan at 7.5% interest

30 day lock - free
60 day lock - 1/5 point
90 day lock - 1 point

The numbers above do not represent actual fees, but are examples only. Fees for long locks vary from lender to lender and month to month.

If you know that you are going to settle your home purchase within 30 days, you may want to lock your loan rate in and avoid the risk that rates or points will increase while you wait for your loan to be approved.

Lenders offer a variety of features on certain loans. Just keep in mind that any advantage that you receive from a lender on your loan will have a fee attached, either points, short lock or higher interest rates. Our real estate agents will give you the information to make good decisions.

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PMI/MIP

In simple language, Private Mortgage Insurance, is required on conventional loans with down payments of less than 20%. MIP, or Mortgage Insurance Premimum, is required on all FHA loans no matter how much money you pay down. However, if you pay off your FHA loan in less than seven years, you will be entitled to a refund of part of the premium. With PMI or MIP, in case of a default of the loan, meaning foreclosure, the lender will be paid and the borrower (you) will pay for the insurance either up front and/or monthly as a part of your mortgage payment. No mortgage insurance is required for Veterans Administration (VA) loans because a sufficient percentage of the loan is guaranteed by the Veterans Administration. VA buyers pay a funding fee to finance the guarantee fund.

Private mortgage insurance is paid by the borrower either by paying an up front fee at settlement, usually approximately one-half to one point, and a small monthly fee until you can pay the loan down to 80% of the original loan amount. You may also, through an appraisal of the property, request that the lender remove the PMI if you can establish that the property has appreciated to a value of more than 20% of the original loan amount.

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