The waiting game – floating vs. locking a mortgage rate
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The waiting game – floating vs. locking a mortgage rate
Does it seem like everything in the world affects the financial markets and, in turn, mortgage rates? If so, it's because it's true: today, it's foreign unrest; tomorrow, it's the U.S. jobs report. Home buyers keenly feel the effects of those tumbling dominoes – but to switch metaphors, waiting for the right rate is more like watching a roulette ball bounce around a wheel: where it stops, nobody knows. And this leads to a decision that buyers continue to face: whether to float or lock their mortgage rate.
How the game is played
Locking in a rate means exactly that: the buyer locks in the rate and it can no longer be affected by changes, up or down. When buyers "float" the rate, they do nothing but wait for the right moment, just before closing, to lock down their final number.
Why play the game?
As with any game of chance, the player's tolerance for risk dictates how long they are willing to stay in it and "let it ride."
For a risk-averse buyer, a volatile market with daily fluctuations may be as much of an inducement to lock in a rate as a relatively stable market with modest movements. By locking in a rate today, the buyer ensures that they are not impacted by any market/rate surprises when closing approaches. It's important to recognize that locking in does come with a risk: rates could drop and the buyer could miss out on a lower number – but that risk is offset by the security of knowing that they won't get a higher rate. By the same token…
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Questions? Contact Me:
Eric Larsen
Sr. Loan Officer
Coldwell Banker Home Loans
(732) 539-3911
NMLS #: 271092
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Regrets, I've had a few – the reality of buyer's remorse
When did it happen? When did excitement turn to panic, laughter to tears, and satisfaction to regret? Suddenly, you're at the "buyer's crossing" – ready to step over the tracks to a completed sale – when the bars come down, the lights start flashing and you find yourself staring down buyer's remorse that threatens to break the deal.
While you may not face full-on remorse every day, you certainly spend at least a portion of your time reassuring and calming buyers. Here's a fun fact with which to impress your friends and colleagues: buyer's remorse is a real psychological phenomenon that falls under the theory of "cognitive dissonance," first studied in the late 1950s. In a nutshell, it is a state that occurs when a person holds two ideas that are inconsistent with one another – and they will do whatever they can to alter or discard one of them to regain internal harmony.1,2
So, here you have your buyer, who, on the one hand, wants "that" house, but on the other hand doesn't want it for one or a variety of reasons. That puts the buyer squarely on your couch, Dr. Real Estate Professional, to try to help them move past their conflict.
But what can you do to help avoid having them there in the first place? According to a 2014 Redfin national survey conducted by Harris Poll, 25% of homeowners suffered from buyer's remorse after signing on the dotted line – with most of the regret linked to things like neighborhood, transportation, price and other factors.3 Here are three of the most common causes for remorse – and what you can do to help prevent them before they become deal breakers.
Curb "reflective accounting"
How many of your buyers have entered into a contract only to go back over their numbers and realize that they don't stack up? When you first meet with a potential buyer, discuss, in depth, their…
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