Interest rates continued to inch higher this week, reflecting signs the economy is strengthening and the job market is stronger. Although international pressure continues to make the markets nervous, with Russia continuing to saber rattle, the US markets continue to draw investment as the safest alternative for investors.
What is a rate lock? How does a rate roll down work? And why do lenders charge for locking in a loan for a longer period of time?
As rates increase, protecting the buyer’s interest rate and payment expectations is a very high priority at Elite Financial. When we quote a buyer a rate, we explain the benefits of locking in the rate with all our excellent options—most important is the roll down. When a buyer leaves your sales office thinking their payment is X, X+$1 can change the perception of the positive nature of the purchase experience.
Simply put, time is money. Money is a traded commodity on the bond market, and when a loan is locked in, there is actually a commitment made to deliver the loan at the given price. The longer the loan rate is guaranteed, the higher the price. This is not necessarily expensive—the difference between a 15 day lock and a 60 day lock can be as little as .25 points. In a very volatile market, it can be much greater.
One of the reasons people are hesitant to lock a rate is the anticipation of rates improving. But with the Elite Financial free roll down option, if interest rates improve, the buyer can get the benefit of the lower interest rate. Now not only is your buyer’s rate protected, but they can see an improvement during the escrow period—something our competition is probably not offering.
Elite Financial can lock in interest rates from 8 days to 6 months in many cases. The rate lock is never an issue except when a buyer goes to close and finds out the interest rate and payment expected is higher—then it can be a huge issue and one of the last things in the transaction which can end the transaction on a sour note. Elite Financial is prepared for these contingencies, which will become more of an issue if rates rise as expected. Protect your escrows with a rate lock from Elite Financial.