February 2nd, 2022 12:56 PM by Devin Murray
With mortgage rates approaching pre-2020 levels and the fed planning several rate hikes this year (4 maybe 5?), what can you do to help yourself or your clients capture the savings?
Despite what the giant retail lenders tell the public what exists and what does not, what we call lock and shop is the number one key. Lock and shop allows a buyer to lock their interest rate at preapproval before they find a property for a minimum of 60 days or more. This allows buyers to focus on making the best investment decision and reduces stress for the buyer and their selling agent. This is not an industry norm as locks are typically associate the borrower and property (ask CMG, Rocket, Sebonic, etc they do not allow it).
If you have found a property know that advanced locks are not created equally. Advanced locks are typically anything beyond 60 days but your customer should not pay a fee to exercise this option. We can lock a rate on purchases and construction refinances for up to 180 days. No up front fee, no gimmicks.
At the time when we lock-in a rate, we use exact rate pricing because it is the future and it empowers borrowers. For the last several decades mortgage rates have been only been offered in 0.125% increments such as 2.875%, 3.0%, 3.125% but the mortgage market rates typically fall exactly on these figures. Meaning “the interest rate market” in any given moment might be at 2.890% without discount or origination points but the old way of doing it would be to offer 3.0% with no points/no discount and offer 2.875 with points/discount. Borrowers therefore have more choices with exact rate pricing to capture the savings of getting that rate versus being limited to a few options.
Whenever a property goes under contract, we also utilized custom rate lock time intervals. Much likes the decades old “rates on the eights” mentioned above, most lock-in periods allow for 30, 45, 60 days and borrowers choose a predefined interval to allow enough time for closing/funding. So if a contract has 25 days remaining when the lock is performed borrower is forced to pay for another 5 days they don’t need in theory. Custom lock timing, in combination with exact rate pricing, together create a hihgly customized lock the reflects exactly what the customer needs and nothing extra that they do not while passing the savings on to them.
In the name of saving money in an increasing rate environment, we can’t forget to emphasize custom loan terms. Until recent years a borrower would opt for either a 15 or 30 year fixed term because 1) the rate savings is greater on the 15 year and 2) these are the only two options available. As a result people avoid asking about different terms because they don’t want to be strapped to a higher payment on a 15 year loan to save annually on the note rate. On every transaction (excluding construction to permanent) we offer any term a borrower might choose between 10-30 years. The untold story is that there are often rate savings within these terms. For example a 20 year term rate is typically less than a 30 year and is often more affordable than the 15 year. Even if the rate is not lower a slightly lesser term, say a 27 year or 28 year compared to the 30 year will help them build equity faster without a small difference in the payment.
Retail lenders are going to take a massive hit in 2022, some say the worst in 40 years. By design we as mortgage brokers we have access to wholesale interest rates across many outlets to shop not only the best rates but also to formulate the best solution for our customers. We have roughly 10 funding lenders nationwide some of which we have had working relationships dating back to 2004. If you have never used a highly qualified, reputable mortgage broker rates are just the start of how brokers are better than retail. #BrokersAreBetter
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Equal Housing Lender