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:
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.
It is a different world now when you are buying a home. You must make sure you do your homework up front and completely understand the process.
If you have any questions about the buying process or need help feel free to give me a call at 865-696-9002 or email [email protected]