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

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.

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.

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 escrow this past weekend and set your closing date for the last Friday in January -- that's January 29, 2010 --  46 days from now.  You'd require, therefore, a 60-day rate lock.

A better closing date would be January 28. That 1-day difference will lower your mortgage rate by an eighth.

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)

One things is clear.  4.500 percent with roughly 1 point is the mortgage market's line-in-the-sand de l'année.

The 30-year fixed mortgage rates has troughed at that exact point 5 times in the last 13 months :

1. Late-November 2008
2. Early-January 2009
3. Mid-March 2009
4. Late-May 2009
5. Early-December 2009

It's an amazingly low rate as compared to history but what's bedeviling is that rates can't seem to break lower.  Every time markets hit the "all-time low", they bounce back higher.

The storyline is well-covered by the press.  Mortgage rates move higher, then experts predict they'll never come down again, then mortgage rates come down, then the experts say "this is the last time".

The impact on Cincinnati's homeowners is palpable.  Whenever mortgage rates rise off that floor, versus feeling an urgency to lock, they choose to wait for a fall.  And why shouldn't they?  It's a strategy that's worked very well since last year and has likely saved a lot of families a lot of money.

But just because the strategy has worked doesn't make it a good idea.  Actually, it's the opposite of a good idea, not the least of which is that it tempts the mortgage rate gods to screw you.

See, aside from mortgage rates, there's other factors that account for your final mortgage approval and none of them are within your control.  Rates may fall back to 4.500 percent at some point in the future, but when they do, you might not be able to take advantage.  Here's 9 things that could go wrong from a much longer list.

1. You could unexpectedly lose your job.  More than 7,000,000 people have been fired in the last 2 years and employment data is still net negative month-to-month. No job, no mortgage approval. Period.

2. Mortgage lenders are reducing loan-to-value limitations.  Suddenly, having a 20 equity stake in your home may not be enough to qualify.  Sometimes, you need 25 percent or more.  On jumbo loans, that number can be even higher.  Homeowners with jumbo and non-owner occupied mortgages are especially susceptible here.

3. Your home could be damaged in a storm. Weather is as unpredictable as mortgage rates and Mother Nature can be a mean one.  Just ask the folks in Chicago who expect up to 10 inches of snow in parts of the suburbs today.  The problem here is that once a state Governor requests federal aid for a storm, mortgage lenders put their closings on hold pending complete home re-inspections.  A damaged home doesn't get its new mortgage.

4. Mortgage insurance rates could rise. Private mortgage insurers lost billions in 2008 and have thrice raised premiums to even up their balance sheets.  Some are returning to profitability but it's likely that PMI rates will rise again. Higher PMI costs offset proposed monthly savings.

5. You could fall ill or get injured. Medical reasons are the second-most common trigger for home foreclosures next to income curtailment (See #1).  If illness keeps you from working, or leads to a long-term disability, your mortgage approval chances drop dramatically.  Nobody ever expects to get sick.

6. Banks could tighten lending guidelines. Well, we already know this is happening. FHA, conforming and niche lenders are still fine-tuning their respective lending models to protect against losses in 2010 and beyond.  The result: Applicants that qualify for a mortgage today may not qualify for one tomorrow.

7. Your home's value could fall. Foreclosures and "fire sales" lower the Fair Market Value of every home in the immediate area.  A home similar to yours that sells for less than yours is going to lower your home's value on paper. Lower valuations lead to higher LTVs and, often, higher mortgage rates.

8. Your credit score could fall unexpectedly. Credit scores are meant predict the likelihood of mortgage default and the model appears to have failed.  As a result, credit bureaus are making tweaks.  Carrying high balances or opening new tradelines appears to be more damaging to credit scores than it used to be.  Lower credit scores means higher mortgage rates.

9. Mortgage rates could rise, not fall. Look, nobody knows what rates will do tomorrow.  Anyone who says they do is lying.  The only thing predictable about mortgage rates is that they're unpredictable.  Take what you can, when you can.  You can always refinance again later.

And, if you want to throw a 10th reason in there for good measure, use this: It's a pain in the arse for the average person to track mortgage rates and at-work productivity can really suffer while you try.

The sooner you commit to a rate, the sooner you can move on with your life.

To get started with your approval, or just to check rates, or give me a call. I answer all my own emails and I like to work with my readers. Plus, my rates are really good.

What's the difference between a good mortgage rate and a great mortgage rate?  Timing.

Mortgage markets have been a strange animal lately.  Because nobody's 100% certain about the country's economic future, markets -- and therefore rates -- are moving like Elaine Benes.

The catalyst for rate changing is when market sentiment makes a wide shift.  Since late-June, there's been 5 such days on which sentiment has gone favorable toward bonds.

Assuming 37.5 basis points to equate to roughly 0.125% in rate, we can see how the rallies have been good for rate shoppers.  Remember, rates and prices move in opposite directions so when prices go up, rates go down.

But we're not here to talk about the good days. We're here to talk about the bad days -- the days after.  For rate shoppers, it's rarely pretty.  After one day in Rally Mode, lately, the next day is a near-complete give-back.  Rates surge.

So, when you're shopping for mortgage rates, consider taking Kenny Rogers to heart.  Know when to hold 'em and know when to fold 'em.

If mortgage markets are rallying, it may be time to metaphorically walk away.  Lock that mortgage rate with your loan officer and preserve your in-the-rally pricing.  As trading patterns are showing, your next day pricing won't be nearly as favorable.

If you don't have the means to track when rates are in Rally Mode, and I can add you to my Rate Watch program. It's a program specifically designed to monitor mortgage rate locks and lock at a favorable juncture.  It's free to participate so if you know you're going to need a mortgage soon, I encourage you -- it's the best way to make sure your rate gets locked with the best possible timing.

Or, take a more passive approach to watching for rallies by following me on Twitter. I update my feed several times per day.

Mr. Deeds: [Stepping into an elevator] So how's the elevator business treating you, Reuben?

Reuben: Oh, it has its ups and downs.

It's been a wild few months in the mortgage markets and a trying time for mortgage rate shoppers.

Making sure you get the absolute "lowest rate" has never been tougher.  Rates are up.  Then, rates are down.  Rates are up.  Then, rates are down.  Over the past 5 weeks, mortgage rates have carved out a 1.500 percent range.

• Mid-May : 30-year fixed rates were near 4.750 with 0 points
• Early-June : 30-year fixed rates were near 6.250 with 0 points
• Late-June : 30-year fixed rates were near 5.500 with 0 points
• Early-July : 30-year fixed rates were near 5.000 with 0 points
• Mid-July : 30-year fixed rates are near 5.375  with 0 points

It's been a stomach-dropping ride for people trying to time a market bottom before locking in a rate and it's all happening because traders can't seem to answer to the most important question on Wall Street right now:

Is the recession ending, or getting worse?

It would seem like a simple yes or no -- there's plenty of available data , after all -- but the data is conflicting.  As soon as we get cause for optimism from one sector of the economy, weak data presents itself somewhere else.

Furthermore, when it comes to predicting the future of the U.S. economy, not all data is created equal.  Unemployment statistics tend to lag, for example, whereas Retail Sales may be more immediate.

So, what's a home buyer or would-be refinancer to make of it all?

Well, first of all, it's important to recognize that markets are moving on momentum and fundamentals right now.  That's a dangerous combination because even the smallest market event could lead to a mortgage rate surge  The other side, of course, is that rates could fall on new news, but mortgage rates usually rise much faster than they fall.

There's an old adage: Mortgage rates take the elevator on the way up, but take the stairs on the way down.

Lately, we've even seen this IRL.  There have been days where rate are up by as much as half-percent as investor flee from the bond market, but when rates recover lower, they seem to be dropping just an eighth of a percent at a time.

Floating your mortgage rate is fine, but given the current market conditions, you may be playing with house money right now and this is as good a time as any to cash in your chips.  All it will take a series of strong earnings from the banks this week and some hotter-than-expected inflation data to push rates back near 6 percent again.

The world moves quickly and mortgage rates do, too.  If you're not already working with a loan officer and are looking for a specific mortgage rate before locking, you may want to participate in my Rate Watch program.  You pick your target interest rate and when it's available on the open market, I'll lock it for you.

Call or .  I'll take a full loan application from you to keep on file, ready for when rates fall.

Or, if you prefer watching rates from the sidelines, my Twitter timeline is http://twitter.com/mortgagereports.  I post several mortgage updates each day.

Since the Fed made its emergency rate cut in January 2008, we've talked a lot of mortgage rate volatility.  Some days up, some days down, most days all over the place.

This pie chart should help put it in perspective.

Read the rest of this entry »

Aristotle bestowed the gift of syllogism upon the world and thousands of years later, it is still believed to be the core of Western logical thought.

A simple syllogism goes like this: 

1. Mortgage bond markets are unpredictable
2. Morgage bond markets dictate mortgage interest rates
3. Therefore, mortgage interest rates are unpredictable

For as much as guys like me can have a vague idea of what can push mortgage rates in one direction or the other, there's always something that comes out of left field to surprise us. 

The syllogism says that predicting the future of mortgage rates is a waste of energy.

Mortgage bond markets are unpredictable because the world is unpredictable.  We can try to make sense of it, but there are a near infinite number of variables to the equation.

Lately, we've been focused on economic events like Unemployment Rates and Retail Sales.  We also spent time on loan-level pricing adjustments.  Pretty soon, we'll add Hurricane Season and oil pipelines to the mix because that will have an impact on mortgage rates, too.

It's like juggling six balls at once and then being told to go stand on a ladder.  There's just too much to which to pay attention.

And then -- to make predictions even tougher -- mortgage rates are moving with a tremendous amount of velocity right now. Over the last 60 days, the nation's largest lender is averaging 2.13 rate sheets per day.  That's the shortest rate sheet lifespan in recent memory.

It also means that mortgage rate quotes are expiring extremely fast.

So, except in rare circumstances, the mortgage rate syllogism is why I advise mortgage applicants to lock a mortgage rate in as soon as possible.  "Floating" can be risky in an unstable mortgage market.

Today's rates and payments may look good, but as Aristotle reminds us, tomorrow's this afternoon's rates and payments could look completely different.

It's well documented.  I'm a bird-in-hand guy.  If there's an opportunity today, I prefer to act on it rather than gamble for a better opportunity that may come tomorrow. 

I've learned -- often the hard way -- that tomorrow only comes sometimes but that today is always here.

This is the opposite of the Gambler Mentality that built Las Vegas.  That skyline wasn't built on winnings, after all.

Think about it: How often do people have winnings in their hands but decide to "let it ride", only to lose their chips later? 

After it's gone, the loser will usually say that they were "playing with the house's money".  To me, that's the worst excuse in the world, though.  It wasn't the house's money -- it was their money. 

I know this to be true because the person could have taken those chips to the cashier booth and cashed out 100%.  You can't do that with somebody else's money.

So, mortgage rates dipped yesterday.  The same way rates did exactly one month ago.

If you passed on remortgaging to a lower rate that day, deciding to "let it ride" with your mortgage rate, you lost money.  Rates moved higher and your "winnings" were gone, back with the house.

Well, today, is your second chance.  You've just won it all back.  Mortgage rates are back down and are skimming their lowest levels of the year (and maybe even two years).

You have two choices:

1. Stay at the table, gamble some more, and see what the future of the mortgage market holds.
2. Call your loan officer and lock in your savings with a remortgage to a lower rate.

Plainly, folks, conforming mortgage rates are low this morning.  They may go lower over the next few weeks.  Or, they may not.  Either way, you have a chance to take what's in front of you today.

You're sitting on a pile of chips right now and it's a good time to walk away from the table.

Call or email your loan officer this morning.  Or -- if you'd rather -- call or email me.  My contact information is plastered all over this blog and you'll have no trouble reaching me.  Remortgaging your home can be simple and can help lock in long-term savings.  Even a small savings each month adds up to a lot of money over the life of a home loan.

Not only would be my pleasure to help you, you'll also be donating to charity.

Mortgage rates are pushing lower today on weaker-than-expected data about the economy. 

Rates go up, rates go down. 

Rates go up, rates go down. 

Rates go up, rates go down. 

And these aren't small movements, either! Since last week's FOMC announcement, mortgage rates are down by as much as half of a percent, depending on the home loan product.

The yo-yo action should be cause for concern. 

Yes, mortgage rates are unpredictable and can change on an hourly basis under extreme conditions, but the velocity at which rates are changing directions is enough to frighten anyone.

Remember that many lenders offer a floatdown service in case rates drop during your lock period, but absolutely no lenders offer a "Hindsight is 20/20" service to let you lock in yesterday's rates.

If the payment looks good, get it locked.

Just two weeks ago, I was talking about Refi Season and Homebuyer Envy.

How quickly things can change.

Mortgage interest rates respond to risk -- the more risk in the market, the higher the mortgage rates will be.  Unfortunately, only Maia knows what "news" is coming down the pike next that can change that risk. 

This is Reason #1 to lock your mortgage rate as early as possible -- you can mitigate your exposure to economic, geopolitical, and natural exposure. 

Plus, you win 100% of the time.

I was reading Seth Godin's Small is the New Big and found a riff that applied to the age old question:

Is it better to float your mortgage rate, or to lock your mortgage rate?

I am a bird-in-hand type of guy and I advocate locking your mortgage rate 100% of the time.  As I see it, no matter what rates do between today and the "future", floating is an option that has losing scenarios; locking your rate has none.

So, then I read Seth's "Gain or Loss" scenario.  It goes like this:

When a lottery reaches $100,000,000, a lot of people buy $1 tickets for the chance to win.  The odds of winning are one-hundred-billion-to-one, but that doesn't deter somebody who wants to win the prize.

Reverse the scenario. 

How much would you sell tickets to people so that if your number came up, you'd give away everything you owned -- figure it to be a million dollars. 

Rationally, if you were willing to pay $1 to win $100,000,000, you should be willing to sell tickets to lose $1 million for one cent.  This is because the odds have not changed in "your" number coming up.

Would you risk losing $1,000,000 for $0.01?

If the answer is no, then your fear of loss is greater than your desire for gain.  The odds of the game haven't changed, after all. 

Would you sell it for $100?  What about $1,000?  Would it take more?

Regardless, if you need more than one cent to sell a ticket, you are a person that should be locking your mortgage rate instead of floating it. 

As it relates to mortgage rates, ask yourself: Would saving 0.125% on my rate make me happier than the sadness of losing 0.125% on my rate? 

If your fear of loss outweighs your desire for gain, you should be locking.

An economist can interpret the past with extreme detail and relevancy, but get him talking about the future and he's as useful as perfume on a pig.

At the start of the year, the Wall Street Journal polled 56 economics to predict what the 10-year treasury note would be yielding six months down the road.

The average prediction called for the 10-year treasury to sit at 4.90% on June 30, 2006, a rise of 51 basis points.

On June 30, the 10-year treasury was 5.15%, 25 basis points higher than the average economists predictions.  That means that the average economist was wrong by 50 percent.

That's a huge miss and it points to a bigger issue of trying to predict the future of mortgage rates and whether 'tis nobler to float or to lock. 

And maybe this poll explains why mortgage markets have been all over the place lately -- the market "experts" are making predictions and setting expectations for traders, but those predictions have been no more accurate than random guesses.

Mortgage interest rates -- just like stock prices -- change price daily and lately they've been trending higher.

For the homebuyer that is "shopping" for a mortgage, or waiting for rates to fall, or just "hasn't gotten around to it", I implore you to make a decision one way or the other, and do it quickly.

The sooner you lock your rate, the less chance you have of losing in the Mortgage Rate game. The logic works whether rates are rising, or falling (and may Trackbacks keep my words alive for a very long time...)

Locking your interest rate is a very safe play for you because no matter what direction rates move between today and your closing date, you'll end up on the winning side of the table.

If you lock your mortgage rate today, you are assured a 100% success rate.

Scenario #1: If you are locked and rates increase between today and your closing, you win because your mortgage rate is below the market mortgage rate on the date of closing.

Scenario #2: If you are locked and rates stay flat between today and closing, you win because you did not spend time watching Bloomberg, CNBC, or doing other research to determine where rates are today.  Time is a valuable commodity for most people, and wasting it can be costly.

Scenario #3: If you are locked and rates drop between today and your closing, you win because most mortgage lenders will allow you to lower your interest rate if the market drops prior to your closing date.  This service is typically gratis because lenders would rather lower your rate to keep your business than to watch you jump to a different lender at the 11th hour.

So far, so good?  All three scenarios are winners.

Now, the opposite of "locking a rate" is "floating a rate".  Floating is exactly what it sounds like -- coasting along on the waters, rising and falling with the tide of market activity.

In the Floating Game, there is only a 33% success rate.

Scenario #1: If you are floating and rates increase between today and your closing, you lose because the mortgage interest rates on the date of your closing will be higher than today's market rate, costing you extra money in mortgage interest each month.

Scenario #2: If you are floating and rates stay flat between today and your closing, you lose because you spent time watching Bloomberg, CNBC, or doing other research to determine where rates are today.  Time is a valuable commodity for most people, and wasting it can be costly.

Scenario #3: If you are floating and rates drop between today and your closing, you win because the mortgage interest rates on the date of your closing will be lower than today's market rate, saving you extra money in mortgage interest each month.

Floating your mortgage rate only has a 33% success rate!  33% gets you into the Baseball Hall of Fame, but it's a pretty high failure rate when you're talking about a person's home.

For example, consider the impact of a 0.125% increase in mortgage interest rates against a $350,000 loan, amortized over 30 years:

$350,000 at 6.500% = $2,212.24

$350,000 at 6.625% = $2,241.09

The smallest of increases -- 0.125% -- adds $28.85 in interest payments monthly.  Yes, there is an additional tax benefit in paying more interest, but the payments are higher nonetheless.

Multiply $28.85 by the 360 payments in a 30-year loan, and you see that floating your interest rate can add more than $10,000 in interest payments to the life of the loan.  Even the 4-year (48 payment) cost is nothing to scoff at -- $1,384!

So -- no matter where you are in the home purchase cycle -- if you have a signed purchase contract in hand, lock your rate as soon as possible.  There is no better way to protect yourself from the fickle mortgage markets, and you can always adjust your rate downward if the markets move down later. 

If you are locked and your deal falls apart, well then so be it.  Lenders can't blame you if you and the seller can't reach an agreement on an inspection issue when you're both acting in good faith.

Remember, you win 100% of the time if you lock your rate, but only 33% of the time if your float and gambling on a $350,000 asset just isn't worth it.

As traders went home for the weekend, and as Iran paraded its nuclear ambitions to the press, gold dropped below $600, oil gained to $68, and stock indices fell.

All three signs tend to push mortgage rates lower, but this week, traders zigged instead of the usual zag.

If there's a lesson in here, it's that mortgage rates have a mind of their own. 

History is a terrific guide for the future of mortgage rates, but it can't be any more than that.  If you rely solely on history to predict where mortgage rates will go, the markets will treat you with the arrogance of Elijah the Prophet at a Passover seder.

This week, mortgage interest rates have bounced around uncontrollably as market try to make sense of the events of the world.

• The Fed says that multiple Fed Funds Rate hikes are within the realm of possibility
• CPI (i.e. the Cost of Living index) shows that consumer prices are responding to inflationary pressues
• Iran's nuclear research programs are back online, driving up gold prices

And then, a new broadcast from Al-Jezeera.  Cue the oil markets...

This week perfectly illustrates why mortgage interest rates can't be predicted with certainty.  There's just many variables.

It's like this: My wife is a Bengals fan.  Prior to the Bengals-Steelers game a few weeks back, the consensus conclusion was that the game was over before it even started -- the Bengals would win in a cakewalk.

On their first series, Bengals QB Carson Palmer connected with Chris Henry for a 50+ yard strike and the game seemed in the bag.  Next, the cameras slowly panned to the backfield to show Palmer still laying on the turf.  Carson Palmer tore his ACL on the play, ending his season.

With their backup QB, the Bengals crumbled and the Steelers went on to win the game handily.

I highlight this game because the same sort of unpredictability exists in global markets that exists on the gridiron -- except in the global economics game, there are no game clocks, or beginnings, or endings. 

The global market is perpetual and new "events" happen all of the time. 

On any given Sunday, anything can happen to shock the mortgage markets and cause rates to run.  You can't stop world events; you can only hope to contain them.

If you are floating your interest rate, lock it.  There's too much risk in floating.

The Dow Jones Industrial Average topped 11,000 this week for the first time since June 2001.

Aaahhhh, June 2001.  If memory serves...

• That was right after scores of techies watched their options turn into dust
• That was right after your parents lost their retirement nest eggs
• That was right after Ray Bourque sold out for an Avalanche championship.

At the time, reports on the Dow and Nasdaq made the news every night.  Sometimes, it was the lead story. 

Looking back, it was stupid.  But, it happened.  And then the market tanked. 

All of a sudden, we had more important things to worry about like the War in Iraq and homeland security issues.  Messrs. Dow and Nasdaq retired back to their rightful places in the Business section and CNBC.

Until this week. 

The psychological 11,000 DJIA level was crossed and people are buzzing again.  "Regular" news networks covering the story and that is drawing even more attention to the stock markets. 

Now, it may be part-media-fueled speculation, but the rally in stock prices is definitely impacting mortgage rates. That's because investors are fueling the stock markets with money from their "less sexy" bonds.

When bonds are in high supply, the prices fall.  And bond yields move in the opposite direction from prices so when money moves from mortgage bonds, mortgage rates move higher.

If you're in the process of buying a home, or are considering a remortgage, a terrific cue to lock in your mortgage rate could be the stories you see on TV and read in the papers.  If The Today Show is talking about the Dow Jones Industrial Average, it may be time to call your mortgage banker and get committed.

Try to time the market, and you'll lose every time. 

Early in my career, I used to let my clients mess around to grab an extra 0.125% in savings when they wanted.  More often than not, they lost 0.125%.  Sometimes more.

We don't mess around these days.

When choosing to lock a mortgage, ignore rate and look at the proposed payment.  Get comfortable with it.   If you're not comfortable with it, change your mortgage product or borrow less money. 

Don't worry about rate -- worry about how the proposed payment fits into your larger financial plan.

Rate is important, too, of course, but it's also the one factor of your mortgage payment that is 100% out of your control.  You can't predict where rates will be tomorrow because the market is uncertain. 

Therefore, focus on payment instead.  Product and loan size are within your control.