What is a "rate lock period"? How can you make sure your rate is low?

A rate lock or a rate commitment is a lender's promise to hold a certain interest rate and a certain number of points for you while your application is processed. This prevents you from going through the whole application process only to discover the interest rate has gone up.

A rate lock period can vary in length, and longer ones usually cost more. A lender will agree to "hold" your interest rate and points for a longer period, say 60 days, but in exchange the rate and maybe points are higher than with a shorter rate lock period, for example.

There are many ways to get a lower rate besides opting for a shorter rate lock period. A larger down payment will result in a lower interest rate than a smaller one, because you're starting out with more equity. You can pay points to lower your rate over the life of the loan, but that means you pay more up front. For many people, this is a good, sensible deal.

Closing costs are fees paid by the lender, which the lender in turn charges you to close the loan. Many people pay closing costs when they sign on the dotted line, but many finance their closing costs. Paying closing costs when closing a loan will reduce your interest rate.

Finally, the interest rate a lender is willing to offer you depends on your credit score and your income-to-debt ratio. If you have good credit and your income far exceeds your debt obligations, you will qualify for a lower rate.

Closing Costs

There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract.

As we negotiate your sales contract, we'll not only work to get the sales price you want, we'll also work to limit the number of closing costs for which you'll be responsible.

We can also walk you through the closing costs, answering any questions you may have regarding which costs are decreed by law to be yours and which are negotiable.

Buyers will receive a "Good Faith Estimate" of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officer's past experience and may not include all the closing costs. We'll be glad to review the "Good Faith Estimate," answering questions and highlighting missing costs and estimates we believe to be low.

Should you consider financing closing costs, escrow reserves, or other cash needed at closing?

Have you built up some equity in your home? If you have, when you refinance, you may be able to "cash out" some of that equity to pay off credit cards or other revolving debt, improve your home, help pay for college, or anything else you can think of. The same is true of refinancing costs: If you have enough equity in your home, you may be able to roll some of the cash due at closing into your loan.

Some of the "cash needed to close," as it's sometimes called, includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.

But you have to be careful. You can't always get these advantages if you borrow up to 100 percent of your home's value. Many loan programs are based on what's called a "loan-to-value" ratio. You may qualify for a very advantageous refinanced mortgage if you borrow no more than 80 percent of your home's value, but may not qualify for the same terms if you borrow 90 percent. We can help you qualify for refinance loan programs for as much as 95 percent of your home's value in most cases, but the lower your loan-to-value ratio (that is, the less you borrow), the better terms you'll generally qualify for.

The bottom line? In many cases, you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. But whether, and to what extent, you can do this depends on the value of your home and the amount of your new mortgage, and what options you decide are best for you.

If you've had your current mortgage for a few years, chances are you've built up enough equity to finance cash needed to close and still have a smaller loan balance than your original -- and a balance that will qualify you for a favorable mortgage program tied to your loan-to-value ratio. We can help you decide!

Many people find it advantageous to pay the cash needed at closing from checking, savings, money market accounts, or from other assets. This is because the less you borrow on the new refinanced loan, the lower your monthly payment will be. But we'll work with you to see if there is an advantageous refinancing program for you based on your ability and willingness to pay closing costs and other fees and the amount you wish to borrow.