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It pays to know a little bit about The Mortgage Rate Game.

Keep Your Loan Fees Lower

Whether you're buying a home in Cincinnati or refinancing one, there's multiple ways you can make a play for lower mortgage rates or fewer loan fees.

1. Have a higher credit score
2. Make a larger downpayment
3. Do your Good Faith Estimate homework

But, sometimes, the easiest way to save money on your mortgage is to pick a better closing date.

Rate Locks Are Bets On Markets

It's all about Rate Lock Commitments.

A Rate Lock Commitment is a bank's promise to honor a specific mortgage rate for a specific period of time.  It's a contract, of sorts, in which the lender says: "Provided you close on your loan in the next however-many days, we'll make sure you get your locked rate."

Now, from the bank's perspective, rate locks are scary.  This is because the bank is promising you a rate today that won't be signed for until some point in the future and banks know that the farther into the future they try to predict, the more likely they are to be wrong.

It's a dangerous game and it's why longer rate lock commitments often come with higher interest rates, higher fees, or both. Banks are hedging against "time risk" at your expense.

How Rate Locks Are Priced Against Time

So the game works like this: (1) Rate locks typically come in 15-day increments, (2) The 30-day rate lock serves as the basis for all other pricing, and (3) All loans headed for Fannie Mae or Freddie Mac follows this pattern:

• 15-day rate lock : 1/8 percent lower than the 30-day rate lock
• 30-day rate lock : The basis for all other pricing
• 45-day rate lock : 1/8 percent higher than the 30-day rate lock
• 60-day rate lock : 1/4 percent higher than the 30-day rate lock

Putting this to a Real World Example, if you went into contract this past weekend and set your closing date Friday, May 21, that would be 46 days from now and would mandate a 60-day rate lock.

A better closing date would be Thursday, May 20, 2010. That 1-day difference will lower your mortgage rate by an eighth.

Rate Lock Timing Matters For Refinances, Too

And the math isn't just for purchase.  It applies to refinances, too.

A refinance that can close in 30 days is going to be better priced, in general, than one that takes 45 days to close.  It's why being on the ball with your loan officer is such a big deal -- quicker to process means quicker to close.

You may not be in a hurry to close, but your rate lock says otherwise.

Managing a rate lock commitment is an easy way to keep mortgage rates and loan fees down.  So, before you set your closing date, or start working on your refinance, consider time's impact your mortgage bottom line.  The shorter your rate lock commitment, the more money you'll likely save.

(Post licensed and adapted from Bring the Blog)

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.