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Rick Pelleriti

Locking the Rate - What You Need to Know

Wednesday, December 29, 2010 - Article by: Rick Pelleriti - American Capital Corp. - Message

Locking the rate may be the single most important aspect of getting your loan.

Until you lock your rate, your interest rate is "floating." You are subject to the volatility of the marketplace.

In today's lending environment, it is not uncommon for lenders to reprice two or three times in one day.

How do you know when to lock?

The lender you choose needs to be watching the market constantly to give you, the borrower, the proper guidance so you can lock the rate when the time is right. The best indicator of "the market," is the Mortgage Backed Securities market, or "MBS."

There is a strong correlation between the price movements in the MBS market and lenders changing the prices of their mortgage interest rates.

When a lender "re-prices," it is often an eighth or a quarter point in price, which means .125 or .25 points.

For example, if your loan is for $400K, a change in price of .125 equates to $500, and a price change of .25 points equates to $1,000.

Unless your lender or mortgage broker has the knowledge and the ability to monitor the Mortgage Backed Securities market in real time, you can easily miss a $500 or $1,000 movement in price.

That is precisely why I do just that - I constantly monitor the Mortgage Backed Securities market, checking it literally 50 or more times a day. I can spot the trends, and more importantly trend reversals, and that preceeds a lender price change.

It does the borrower no good to choose a discount lender, or to go to a Big Bank and work with a junior loan officer, thinking you might save several hundred dollars in closing costs, when you give that away, and more, by simply not knowing when to lock the rate.

The bottom line - whomever you choose to use as a lender, always ask if they constantly monitor the Mortgage Backed Securities market when recommending when to lock the rate.

If they don't, why on earth would you want to use them?

Be smart - and work with a lender who has this ability.

Rick Pelleriti

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