Pinpoint your rate when you refinance home
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By Scott Sheldon  September 6, 2013 12:00 am

Timing the market…determining the best time to lock in your mortgage rate when refinancing your house – welcome to the numbers game. 

Mortgage rates fluctuate just the way a stock ticker does, so identifying who is a better-priced loan lender at any given point in time can be an ever more complicated process. That is, unless you have two side-by-side comparisons at the exact same time. But who can do that? Here’s how to navigate current refinancing rates to secure the best deal.

Allow for variances

If you missed the refinance boat in the last few months, not to worry, as rates are still at historic lows. Bond price gyrations (rate movement) are still eminent, making possibility of rates dropping to sub 4 percent on 30-year mortgages unlikely. Rates we saw in March and April this year will probably forever remain history.

The following are some finance tips:

• Rather than searching by rate alone, search within a range. Competing lenders are usually within a quarter percent of each other.

• Expecting to pay no points? That might change depending on the rate sought. A small percentage of discount points could be applicable running anywhere from .125 to more than 1 percent of the loan amount.

• Locking in without an appraisal? Know this: your interest rate/term is subject to change because an interest rate lock is based on a loan to value (how much the lender is willing to lend you vs. value of the collateral i.e. the house).

• Credit score under 740? Allow for greater potential interest rate variances by at least .375 percent in rate.

• Appraisals run the show and can change the amount of mortgage insurance required if there is less than 20 percent equity.

• Allow for flexibility on closing costs by at least $1,000. This seems like a lot of money, and it is. So if you’re quoted $2,700 for closing costs and you allow for a variance of $1,000, if the appraisal costs change and sometimes they do, based upon the scope of work required, for example or if the market dictates percentages of discount points associated with your interest rate, these can increase the total closing costs.

When to consider locking refi rate

This will be different depending on your goals, expectations and property occupancy, e.g. primary home, second home or investment property use.

• Locking up front for 30 days upon appraisal order: Locking in your interest rate up front when you order the appraisal is certainly something most lenders can be accommodating with. A major risk is if your valuation does not come in at what you precisely say it is, your loan to value could change subject to the property valuation.

If the loan to value is potentially anything 70 percent or more, it might make more sense to lock once the appraisal comes back. If it is projected, the appraisal will absolutely show significant equity to the tune of 40 percent or more. Other than market conditions (and high credit score), there is little risk to locking in the interest rate immediately.

• Locking up an appraisal: The appraisal comes in and locks instantly, allows for little or no chance of change to rate, payment, terms or costs. 

• Another choice is providing your mortgage company your interest rate lock preferences and any applicable pricing adjustments, such as discount points with those rates. An advantage to allowing your loan officer to lock in your interest rate before the appraisal comes in is getting a better rate prior to a slip in rates (meaning rates rose). As the informed consumer, it’s important to understand your rate and pricing preferences could be available when you’re not reachable, so providing a range of lockable loan preferences, gives your mortgage company a sense of the type of pricing you expect.

Ultimately, it’s the choice of the consumer to determine when to lock their interest rate. As more positive economic data surfaces, investors pull their funds out of the fixed income market and move those monies into equities, causing the stock market to rally and a deterioration in mortgage rates (rising) ensues. Conversely, when negative or ambiguous economic data surfaces, investors move their money back into fixed income securities, causing yields to rise and mortgage rates to improve (fall). It is instances like these that provide prime opportunities for locking in a favorable mortgage rate.

Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.

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