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The following information is provided to help you make the right decision about 'locking' your loan:

What is a 'Rate Lock Request'?
Mortgage rates published on our website and quoted over the phone change frequently - at least once per day around 8AM PST and up to five times per day during market hours. The number of times per day our rates change depends on many factors, most notably movement in mortgage backed securities and the U.S. 10 Year T-Bill traded on the Chicago Mercantile Exchange

When bond prices go up, the effective yield (interest rate) goes down - when bond prices go down, the effective yield (interest rate) goes up.

When you request a Rate Lock either over the phone or online, you request to reserve a rate and point combination posted at the time of your request. You don't need to know exactly which rate and point combination - you can change it later by reviewing the combinations that were available at the time you locked.

Loan Republic will request your lock from one of our lenders for 30 calendar days, although longer periods are available at a cost of .125 points for each additional 15 calendar day period up to 90 days.

What if rates go up after I lock?
Nothing! No matter how high rates go, once your lock is secured you are protected from market fluctuations as long as you close your loan in the number of days your rate is locked (usually 30 days).

What if rates go down after I lock?
Locking an interest rate is like buying a stock - if the price goes down after you buy you can't return it for what you paid! In other words, a lock is a lock - your rate is reserved regardless if rates go up or down. If you believe rates are going to decrease - don't lock your rate!

When should I lock my rate?
Deciding when you lock your rate depends on how much time and economic expertise you have. Generally, we offer the following advice:

  • If you are just beginning the refinance or purchase process, we strongly suggest signing up for our free, anonymous rate-alert service at www.loanrepublic.com/alerts - this service will notify you of rate changes so you can develop a feel for the peaks and troughs if interest rates
  • If you like the rate you see and are too busy or uninterested in monitoring the daily rate fluctuations via our rate monitoring service, LOCK IT!
  • If you are a knowledgeable trader and familiar with the frequency and impact of the various economic reports and predict bond prices will rise (aka yield will fall), FLOAT (don't lock) the rate and let's hope your prediction comes true.
  • We are here to discuss and advise you on your lock decision M-Sat 7-7PST at 1(800) 218-3315. While we don't have a crystal ball, we can suggest plausible directions of rates based on current and expected market conditions.

Why do interest rates go up and down?
To understand why mortgage rates change we must first ask the more general question, "Why do interest rates change?" It is important to realize that there is not one interest rate, but many interest rates!

  • Prime rate: The rate offered to a bank's best customers.
  • Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months, and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
  • Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years, and 10 years.
  • Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
  • Federal Funds Rate: Rates banks charge each other for overnight loans.
  • Federal Discount Rate: Rate New York Fed charges to member banks.
  • Libor: London Interbank Offered Rates. Average London Eurodollar rates.
  • 6-month CD rate: The average rate that you get when you invest in a 6-month CD.
  • 11th District Cost of Funds: Rate determined by averaging a composite of other rates.
  • Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.
  • Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them, and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.

Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates. If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit, so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.

Fundamentally:

  • Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).
  • Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up!

There is an inverse relationship between bond prices and bond rates. This can be confusing. When bond prices move up, interest rates move down and vice versa. This is because bonds tend to have a fixed price at maturity-typically $1000. If the price of the bond is currently at $900 and there are 10 years left on the bond and if interest rates start moving higher, the price of the bond starts dropping. The higher interest rates will cause increased accumulation of interest over the next 5 years, such that a lower price (e.g. $880) will result in the same maturity price, i.e. $1000.

Economic Event

Effect on
Interest Rates

Significance of event

Consumer Price Index (CPI) Rises

Up

Indicates rising inflation.

Dollar Rises

Down

Imports cost less; indicates falling inflation.

Durable Goods Orders Increase

Up

Indicates expanding economy

Gross National Product Increases

Up

Indicates strong economy

Home Sales Increase

Up

Indicates strong economy

Housing Starts Rise

Up

Indicates strong economy

Industrial Production Rises

Up

Indicates strong economy

Business Inventories Rise

Down

Indicates weak economy

Leading Indicators (LEI) Increase

Up

Indicates strong economy

Personal Income Rises

Up

Indicates rising inflation

Personal Spending Rises

Up

Indicates rising inflation

Producer Price Index Rises

Up

Indicates rising inflation

Retail Sales Increase

Up

Indicates strong economy

Treasury Auction Has High Demand

Down

High demand leads to lower rates

Unemployment Rises

Down

Indicates weak economy




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Copyright 2021 Loan Republic Financial, Inc. Interest rates and fees change frequently without notice until you apply online and request a rate lock. We arrange but do not make loans. Licensed in CA - Department of Real Estate Broker License 01845942; CO - Division of Real Estate Broker License MB100009282; FL - Office of Financial Regulation Mortgage Broker Business License 550427; OR - Division of Finance and Corporate Securities Mortgage Broker License ML-4361; UT - Division of Real Estate Broker License 7004449-MLCO; WA - Department of Financial Institutions Mortgage Broker 510-MB-36934; Nationwide Mortgage Licensing System License #24796 | nyc-rpt



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