I was wrong about 4.5% . . . kind of.


If you have been following my blog, you may remember a certain post concerning my thoughts on 4.5%.  In the post I talked about the unlikely prospect of mortgage rates dipping down to 4.5% (also, for the record, at the end of the post, I mentioned how glad I would be, in this one instance, to be wrong in my prediction).  And at the time, the Feds had just announced their intentions on putting billions in to the mortgage backed securities market to help push mortgage rates lower.  Last week the “b” was replaced with a “t” . . . now $1.3 trillion dollars [see the previous post on Refinance Plan B(2)].  So, I was wrong . . . kind of.

So what about 4.5% ?  Can you get a mortgage at 4.5%?

Yes, you can.  And here is how.

Option 1:  Get a 15 year mortgage  (today’s rate for a 45 day lock-in with a 740+ credit score, 80% loan to value). 

Option 2:  A well-timed combination of catching the mortgage market and interest rates on the down-swing, and being positioned to take advantage of a shorter lock period on your rate lock-in.  How do you get positioned?  Read on.

When lenders publish rate sheets, the rates are based on a lot of different factors.  Some of the factors that affect available rates include your credit score, your loan-to-value, your loan amount, and your combined loan-to-value (1st and 2nd mortgage).  And in a crazy-volatile market like the one we are in, a big factor can be the number of days to lock-in and protect your rate.  For a purchase transaction, the time-frame for the rate lock-in are driven by the closing date.  For a refinance, there is little more flexibility on when to close (and when and for how long to lock). 

On a rate sheet, available rates can vary by 0.125% to 0.25% to 0.5% depending on if the rate is locked-in for 15, 21, 30, 45 or 60 days — the shorter the lock-in, the lower the rate.  Why?  Because on a shorter lock, the risk of a serious market-move in the wrong direction is less likely.  Think about it — if your interest rate is locked and protected for 45 days, the lender is not going to need to provide the funds for your closing (a wire to the closing agent) for another 35 to 40 days = this means more time for the market to deteriorate and possibly cost them more to deliver the rate promised to you.  The shorter the lock (and the less time for market variation and risk), the lower the rate.

So who is eligible for a short 15 day lock-in?  Anyone who already has his or her loan approved and ready to close.  So you want 4.5% on a 30 year fixed rate loan?  Be ready to close in 5 to 7 days.  And the only way to be ready to close in 5 to 7 days is to give up the old way of doing business and think about things a little differently.  I call it Plan B (read the longer explanation). 

If you have an interest rate at 6.0% or higher or if you have an adjustable rate mortgage, and are planning on being in your house for more than 3 years, you DO need to refinance.  If you want the best rate, don’t wait around for the best rate to come to you.  You need to get started with the paperwork sooner than later (and appraisal, and verifications, and the underwriting process, and the waiting in line for underwriting process, and the subordination approval process ifi you have a 2nd mortgage) and be ready to take advantage of a great rate on a short lock. 

Think about it this way . . . if rates go up 0.25%, by the time you are approved and ready to lock-in for 15 days, you’d still probably be able to get the same rate as today (0.125% to 0.25% better because of the short lock).  If rates stay the same as today, by the time you are ready, you’ll be able to get a rate that’s 0.125% to 0.25% better than today’s rate.  AND, if mortgage rates go down, by the time you are ready, you’ll be able to get a rate that’s even THAT much better than today’s rate (better because of lower rates and better because of a shorter lock-in period).  In this market, it’s the best way to refinance.  I could be wrong . . . but, come-on, twice in four months???


Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com


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