1. Apply NOW: Apply for your loan (i.e. forward paperwork to your broker/banker) in the next two weeks. If possible, do it this week. Don’t wait to see if rates go lower because “the economy is terrible” and your ____________ (fill in the blank) “knows” they will. Apply now and see below for a resolution of the potential lower rate problem. You need to apply, because as the New York Lottery says, “You Need to Be In It To Win It.” And you are not in it until you start the refinance process even though you believe you are since you are “monitoring” rates.
2. Lock at Application: Lock in your interest rate when you apply for the loan. When you lock-in the rate, make sure that the rate lock is good for at least 60 days. It is going to take this long to close your loan even if you it does not seem like is should! Many brokers and internet sites entice you with lower rates but only offer a 30 day rate lock. That has not been enough time to close for 2 years and is definitely not enough time to close now. For example, as result of new regulations, an appraisal cannot even be ordered (let alone performed) for at least 5 days (and often for as many as 8 days) after an application has been submitted. I want to reiterate that a 60 day lock is the minimum you need. We lock all our borrowers now for 60 days and have for a long time. I would also ask about the cost of extending the rate beyond 60 days since you are possibly going to need a rate lock extension especially if anything unusual arises (which it almost always does now).
3. Floatdown Option Request that the loan be locked with a bank that has a “floatdown” option. That way, if rates go lower after you lock in your rate, you will be able to take advantage of it. But, if the rates don’t, you will not risk losing today’s low rates by gambling for a slightly lower rate in the near future. Most lenders offer floatdowns now since they do not want to lose the loan by having the borrower go elsewhere for a lower rate. We use lenders that offer this on 90% of the deals we close and on all of the refinances we have originated in the past month. Note that floatdown policies differ with some lenders offering you their current rate (i.e. the lowest rate) if rates go down and others offering their current rate plus an additional amount to account for the cost of the funds. These additional amounts are typically about .125% but can be as high as .375% above the banks’ current rate.
4. Reputation is King: Use a reputable broker or banker (i.e. one who was referred to you by friend, family or professional). I know that this is common sense, but maybe not so much anymore. This is not the time to chase every last .125% by using an internet mortgage company or by getting the broker/banker to convince you to lock for 30 days because they can close in that time. With the increased regulations, decreased staff and continually increasing underwriting turn-times, you want to make sure that you actually close on the interest rate you locked. It does you no good to be locked at an interest rate and not be able to close on it. Think of the old Seinfeld bit at the Chinese restaurant and the “reservation.” Jerry and his friends could not eat at the restaurant, though they had made a reservation, since the restaurant had failed to “hold the reservation.” Jerry then pointed out that the importance of a “reservation” was the “holding” of the reservation not the “making” of it since you cannot eat at the restaurant if the reservation was not held! It is similar logic on interest rates where just “locking” the rate does you no good if you cannot “close” with that rate.
5. Be Responsive: If your broker or bank requests that you provide additional documentation, explanation letters, disclosures, etc., provide them as soon as you can. Do this even if you cannot understand why they are needed or think the request is ridiculous (which it likely may be) . Also, it does you no good to argue with the broker or the bank about these requests or point out to them that you “took out a loan a few years ago and did not have to provide these items” NEWSFLASH–We know, the lenders’ know, and it doesn’t matter. As they say in the securities industry, “past performance is no guarantee of future results.” The past is the past. This is especially true in the mortgage business. Since things take a long time anyway now, you don’t want to be the cause of any unnecessary delay on your refinance which may result in your rate lock expiring. Moreover, if you respond timely to all requests and the delay in closing is mostly/solely as a result of bank delays, there is a good chance that the bank will extend your rate for a short time at their cost if you cannot close within the 60 day rate lock period. But, if you don’t you will definitely need to pay for an extension.
Follow the above steps and you will likely be able to enjoy a successful refinance and save hundreds of dollars on your mortgage!