Franklin Financial Group Blog

When working with mortgage customers I am often asked whether or not I think they should lock in the interest rate or float. For those of you who do not know what it means to float, it means you do not lock in at a specific interest rate during the time your loan is being processed and are subject to what rates are at the time you do choose to lock in. Obviously someone would choose to lock if they think rates are going to go up during the processing period (time between application and closing) of the loan, and they would opt to float if they believe rates will go down during the processing period. The concern is there is no guarantee as to the movement of rates during the processing period. What many people do not realize is that mortgage interest rates, or more specifically the pricing of these rates is constantly changing.

I follow the daily Mortgage Backed Securities (MBS) market all throughout each day. The "ticker" I watch starts registering activity around 8:00 am each morning and runs until about 4:00 pm each afternoon. If there is any late activity I will receive notifications after 4:00 pm. Mortgage Backed Securities are actually groups of mortgages packaged into securities to be sold on the secondary market. These groups of mortgages have a certain value at any given time whenever they are bought or sold. When the value or pricing of these groups goes up, there is a possibility that mortgage rates issued by lenders may go down, and vice versa. The reason no guarantee can be given as to movement of future pricing is that there are many factors (often emotionally driven) that drive the pricing. Some factors include Jobless Claims, Housing Starts, FED Comments and Actions, and Stock Market Activity, just to name a few.

The point is that no person can predict with 100% accuracy what is going to happen in the MBS markets. It is therefore crucial that anyone looking to obtain a mortgage align themselves with a Mortgage Consultant that has the knowledge and understanding of the MBS market and who monitors it on a daily basis. By understanding and monitoring the MBS market, a Mortgage Consultant has the ability to save their borrowers quite a lot of money by helping them decide when is the right time to lock in versus float an interest rate.

The process discussed is very similar to playing the stock market. You must be savvy enough to make the right decision or else it can cost you. To protect my borrowers I give them a guarantee of the rate I am able to secure for them. By this I mean when they apply with me, I guarantee I will give them the rate listed on their loan application, or better. We always start out with the rate that is available for the particular loan applied for on that day. It is then up to me to watch the rates for my borrowers. My guarantee is that if I make a wrong judgement and do not lock in the rate, and by the closing date rates have risen, I will cover any costs to secure the originally quoted rate. I am human and thus have made some decisions that cost me personally over the years, however I owe it to my customers to stand by my guarantee. I always do! On the flip side of that coin, it is much more common for me to list a rate on the loan application, and by careful monitoring of rates, I am able to secure a lower rate by closing than the borrower originally applied for. How often do you think my borrowers are upset by that? The answer is always Never!

So the next time you consider working with anyone to obtain a mortgage loan, ask them about their knowledge, understanding and monitoring of the MBS markets, and if they can give you a lower rate by closing if rates have gone down during the processing period of the loan. My thought is that many originators will not even know what you are talking about, much less be willing or able to give you the same guarantee we can. My suggestion then is for you to continue searching until you find someone who can. Of course if you are reading this article your search is, in my opinion, over!