Marc's Mortgage Matter's

Locking in a mortgage rate gives borrowers some protection from sudden spikes in interest rates, which not only helps them save money over time but also provides peace of mind. 

The credit crisis hasn’t removed this option — mortgage lenders, brokers and bank loan officers will still freeze rates on a loan. But borrowers looking for such guarantees these days face more hurdles and higher fees, especially if they need to lock in a rate for more than a month.

The shift is part of the industry’s more conservative business approach. Only a few years ago, during the last ‘refi’ boom, lenders were locking in people willy-nilly, no questions asked. But things have shifted, because lenders are more attuned to the bottom line.

Indeed, before the credit crisis, lenders were doing such brisk business that many of them seemed to care little if they spent time working on a loan that ultimately fell through. But because lending standards were so liberal, few loans actually did.

Loan officers will more carefully scrutinize applications now, to ensure that borrowers can qualify for a loan. Nowadays,a high percentage of people don’t have the income or assets or equity in their homes to qualify for a mortgage. Before the credit crunch, an oral estimate of borrowers’ earnings and home values was often enough for many lenders and brokers.

The cost of a rate lock is usually built into the lender’s fee, which is expressed in “points.” An up-front charge, a point is equal to 1 percent of the loan amount. For a 30-year mortgage of $250,000, for instance,  borrowers with good credit would have received an interest rate of 5.125 percent earlier this month and would have paid a point, or $2,500, to lock that rate for 30 days.

Thirty days is usually enough time for borrowers and lenders to compile and process the documents needed to complete a loan. But more complicated loans, like those involving co-ops, can often take longer. This is also the case, for so-called consolidation and extension mortgage agreements (mortgage tax in the five Boros), used by those who are refinancing their loans.

Some lenders recently started charging an extra half point to lock a rate beyond 15 days on refinance loans, and an extra point to lock a rate for 45 days.

And if rates happen to fall while the application is being processed? Borrowers are still required to accept the rate they locked in, but often we could renegotiate the rate. They can go elsewhere, and forfeit any fees already paid, but in the current economic climate, there is absolutely no guarantee that their new application will get approved!

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