Market Insight

Change Your Closing Date to Get a Lower Mortgage Rate

July 10, 2009 by · Leave a Comment 

Sometimes, saving money on your mortgage is as simple as picking a better closing date. 

It’s all about Rate Lock Commitments.

A Rate Lock Commitment is a bank’s promise to honor a specific mortgage rate for a specific period of time.  They are a lender’s prediction of what mortgage markets will look like at some point in the future.

The future is murky, of course, so it follows that the longer the rate lock, the higher the bank’s corresponding interest rate.

Banks have to compensate for “time risk”.

Rate locks typically come in 15-day increments with the 30-day lock serving as the basis for all other pricing:

  • 15-day rate lock : 1/8 percent lower than the 30-day rate lock
  • 30-day rate lock : The basis for all other pricing
  • 45-day rate lock : 1/8 percent higher than the 30-day rate lock
  • 60-day rate lock : 1/4 percent higher than the 30-day rate lock

These aren’t exact figures, of course.  Spreads between rates can (and do) vary from lender-to-lender.  On average, though, they’re fairly close.

This is why choosing a closing date is so important to your mortgage rate. A 45-day closing may reduce your rate 0.125% versus a 46-day one.

Assuming a $250,000 home loan near today’s rates, that’s an annual difference of $236.

So, when negotiating a contract on a home, keep in mind how rate locks work to make sure you get the best rate possible. The shorter the length of your rate lock commitment, the more money you might save long-term.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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