Do you want the best rate? Of course you do, but it would help you to know that the “best rate” is relative to your unique financial situation, and that there are many variables that go into each and every mortgage deal. The helpful guidelines below will help you better understand the components of a rate quote and the effects on pricing.
When you call and ask what your rate is, you will generally get quoted the prevailing rate, aka the floating rate, which means if you are ready and able to close within 15-21 days (which means you have applied for a mortgage, supplied your financial information, have a commitment from the lender, an appraisal, a title report etc.), and you locked in the rate right now, this is the rate you would get. Most residential purchase real estate transactions do not realistically fit a prevailing rate time frame. Most borrowers are not informed, at the time they are quoted the rate, about the “if you are ready to close in 15-21 days” time frame. Therefore, if rates are dropping, fine. But, if rates are increasing (like they are now)—surprise!
Prevailing rate quotes will always be lower than locked-in rate quotes. So, if you are rate shopping and want to compare apples to apples, when you are quoted a rate, the key thing is to make sure you ask: How long is the rate locked in (protected) for? Are there any points, origination fees, broker fees? What lock-in time frames are available? More importantly, make sure you can close within that time frame; otherwise, you may be subject to extension fees. Generally, the longer the lock the more it costs. Lock-in periods are usually 15 days, 30 days, 45 days, 90 days, 120 days or 180 days. Paying points, increasing the rate, or both, incorporates the cost of the lock. You may want to ask if a float down option is available (if the rate drops after you lock can you get the lower rate).
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By Carl Guzman
Carl E. Guzman, CPA, is the president and founder of Greenback Capital Mortgage Corp., a mortgage broker/banker in New York, New Jersey and Florida, celebrating over 25 years of assisting borrowers with their financing needs. He is a CPA by training and a licensed real estate broker in New York and New Jersey specializing in complex residential and commercial mortgage solutions.
