- The Washington Times - Friday, May 1, 2009

Q. I recently spoke with my credit union about refinancing. They sent me a good faith estimate. The rate and fees appeared to be very competitive. When I told the loan officer I would like to lock the rate and proceed, he told me that the rate quote was for 15 days and we couldn’t lock the rate because it’s taking about 60 days to close a loan. I thought it was a bit dishonest for him to give me a rate that he couldn’t guarantee. Is this a classic bait and switch?

A. Probably not. In fact, many of my refinance applicants in process are currently floating their rate. While I have spent much of my career preaching the virtues of locking into an interest rate instead of “playing the market” and floating, hoping for rates to drop, there are two compelling reasons for a refinance applicant to get his application in process and float the rate.

First, it is taking a long time to get a loan closed. Loan officers, processors, appraisers and underwriters are inundated. Tighter underwriting guidelines are causing further delays. A good loan officer will be upfront and honest about the time it takes to close a loan. If someone is promising a 15-day closing on a refinance, be skeptical.

Second, the interest rate spread between a short-term lock and a long-term lock is abnormally wide. Traditionally, there isn’t much more than a 0.125 percent difference in rate between a 15-day lock and a 60-day lock. Currently, many lenders are offering a 0.375 percent improvement for a short-term lock.

I doubt if your loan officer is trying to be dishonest. If you are concerned that rates may increase in the next few weeks, ask your loan officer what he can offer you that can be guaranteed from the time of application.

Predicting the direction of interest rates is not easy. An online business magazine recently published a piece that cited various economic experts predicting low rates through 2009. In fact, it went so far as to advise borrowers against rushing to refinance because rates will remain low for many months to come.

I’m not sure I agree with the article. While the government’s efforts to purchase underperforming mortgage assets should keep long-term interest rates down, there are other factors that determine the movement of mortgage rates. If, for example, China and other foreign countries lose their appetite for U.S. Treasury bonds, you can bet the interest rates will rise across the board. Also, an $800 billion infusion into the economy may indeed spur growth, but it may also spur inflation, which will cause interest rates to rise.

I have advised many times before that readers should not get greedy. If a homeowner can get a financial benefit from refinancing now, he or she ought to take advantage of it.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at henrysavage@pmcmortgage.com.

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