I am set to close on the 23rd of this month. I first applied for a loan when rates were still jumping around, and I got a rate of 9.125 percent. With the rates consistently falling, how do I persuade the mortgage company to give me a lower rate? -- Dean
A: You're in an unusual situation because most people are worried about interest rates rising when they apply for a loan. To prevent this, lenders typically allow mortgage applicants to "lock in" their rate, typically for 30 to 45 days. Applicants can pay a small fee to lock the rate for a longer period.
Of course, the lock-in works both ways. As you're finding, the protection afforded by a lock-in also holds the mortgage rate if rates fall. Unfortunately, there is no way to persuade a lender to give you a better rate once you lock in a rate.
What you can do if rates continue to drop is apply for a loan with another lender and lock in a lower rate. But you'll forfeit the loan application/processing fee you paid the first lender.
Buyers who want to gamble that the rate will fall can apply for a "floating rate" mortgage. This means they will accept the rate the lender provides -- whatever it may be -- on the date of settlement. But it is a gamble. There is no telling whether the rate then will be higher or lower than the rate the borrower was quoted when applying for the loan.
If you're shopping around for loans, it's a good idea to read economic and interest forecasts from various housing industry groups. But it's safe to say that within any 30-day period, rates usually don't move more than one-half of a percentage point unless the Federal Reserve decides the raise interest rates.
Is No Down Payment a Good Idea?
Q: When getting a VA loan, there is no down payment. Does that automatically make the monthly payment higher or does the no down payment include at the same monthly payment as if a down payment were made? -- Denise
A: Depending on your eligibility and military service, you might qualify for the no down payment loans with the Veterans Administration. In fact, most veterans do not use a down payment. Instead, borrowers finance the down payment by paying a funding fee, which can be wrapped into the loan itself.
A basic "funding fee" of 2 percent must be paid by all but certain exempt veterans. A down payment of 5 percent or more will reduce the fee to 1.5 percent of the loan and a 10 percent down payment will reduce the fee to 1.25 percent. If you take out a loan without a down payment, the funding fee makes your monthly mortgage payment higher than if you had some form of down payment. This is called financing your down payment. For details, check with any lender or your nearest VA office.
