Hi everyone,

I need advice from you guys on how the interest rates work.  I'm going with Wells Fargo and I've locked in my interest rate at 4.25% for 15 years/0 points a month ago.  They have a one time float down policy where I can change my rate if it goes down.  Now I don't know a lot about interest rates, but I know that while I was shopping for a lender, I was basically comparing Wells to HSBC Premier and they ALWAYS had the same rate.  

Yesterday, HSBC Premier had 3.875% with 0 points for 15 years.  When I brought this up to my broker, he said Wells still had 4.25% with 0 points.  He told me that if I wanted that rate, I will need to get a Good Faith Estimate from HSBC - but I can't get that without applying for the loan!  Is my broker trying to rip me off?  Does he get to pocket that 0.375% difference?

Any ideas and advice will be greatly appreciated!

Rates varry from bank to bank on any given day - as you have one time float down - if Wells had the rate, your loan would have been relocked.  If you can apply with the other lender with no cost to you to apply and supply the GFE showing the lower rate, most major banks will honor the rate to keep your loan, if you cannot - check with your Wells Banker every day to see if their rates have lowered - it's not unusual for one bank to agressively price a specific loan product - and the other banks will follow in a day or tow  - your Wells Banker cannot pocket the .375% - they are no allowed to take an "overage" or the difference in the cost for the rate - Hope this helps you understand -

Wells float down policy has cost built in. Thus it is not a true dollar for dollar float down to current market rates. My guess is that your loan officer is accurate in that he cannot float you down to 3.875% based on the internal costs associated with actually processing the float down.

As I think about this more - how long is the Wells Rate lock VS the rate lock being quoted to you by HSBC - and my next quesiton is - how can they give you an accurate rate quote with out an appliction - as it is Credit score driven - so make sure you are being quoted a rate that is the exacta same terms as the Wells - my rate sheet shows the 3.875% with a fraction of points for the rate ... but that's only for a 15 day rate lock...

Thanks for all the replies everyone

Jennifer, I have the HSBC person my credit score.  He didn't specify the rate lock length though and I didn't think to ask - I just assumed it was 60 days, just like Wells.  According to your sheet, is 4.25% accurate for 15 years, 0 points and 60 day rate lock?

Jason, I was wondering the same thing about internal costs.  If that's the case, then he wasn't forthright with me when he told me that I could float down the rate at "no cost".  No DIRECT cost to me, sure.. but in a sense I AM paying for this float down because I have to remain at the higher rate until they can cover the costs on their end.  

This is my first time buying so I feel I made a few rookie mistakes.  Thanks for all your input.  I wish I knew about this site sooner!

Hi,  For rates - this is how it works in Bank rates - I have always worked for banks - broker are a different pay/rate - either you pay points for the rate and pay me - or the price is 0 points to you for the rate and the bank pays me.  Your rate it determined by who pays for the rate,  you or the bank, and if you want your closing costs covered that will make your rate higher  - in other words, the more you pay into the cost of the rate, the lower your rate will be.  I am supposed to collect 1 point for the rate - and this is how I am paid and how my boss is paid - so I do not keep the whole 1 point for the rate.  So if you wanted to pay me for the rate, today on a 15 year fixed rate loan, purchase - loan amount less than 417,000, single family home, 20% or more  down payment, FICO score over 740 - you would have the following options for rate for a 60 day lock -

3.875% = .350% cost to you, 4.00% = 0 points to you for the rate, 4.125% = .375% for the rate  credit and  4.250% = + .750 credit to you for the rate.

Three days ago - add about .375% to each rate the cost for the rate was about the same - so it would appear this is about when your rate was locked.  The rates have been on a real roller coaster these days.  And 4.250% has been a very consistant 15 year fixed rate for a while - so locking in that rate was not a bad call - based on the last few weeks.

Once the rate is locked, you are protected from rate increase, but when rates go down - which  they have been for the last 3 days - you are locked at the higher price - however, with a float down, if you do not pay a float down fee - the rate must go down about .50% before the bank can lower your rate and not lose money on the loan - because once they lock your loan amount and rate - they put an order in on your mortgage money - and they are forecasting profit and loss based on your future loan and rate (not 100% accurate analogy on my part - it's a very complicated and convoluted process - but the rate and terms of your loan does affect their balance sheets - and the mortgage department is charged by the Bank to remove, relock and lower a rate.) 

On a 15 year fixed rate mortgage - if the loan officer has collected the necessary 1 point (either you pay or the rate sheet pays) the bank mortgage profit is at about 1.75%  - of which the bank pays the loan officer about .50 - to about .70 (on a 200,000 loan that's 1,000 to 1,400) - and the mortgage department uses the rest to pay the loan officer's manager, his manager - and his manager - the building costs, marketing - well everything it takes to run a division of a bank.  So the float down option that is not paid for comes out of the manager's profits on your loan - and the cost to a bank for a free float down is - about .625% - with the new rules in place, a Bank Loan officer cannot allow any cost for the loan to be reduced from our pay - or commission  - it must come from the managers profit - and while they give us some margin - .625% is most of their profit.  Before the new lending laws - I could reduce my profit and give you the benefit - and usually the manager split the cost for the discount with me - but the new rules are in play -and as predicted - the customer is paying for the new Frank/Dodd and Fed rules. 

It is RARE that anyone locks at the bottom of the market - you are very very close!  If you loan officer could lower the rate - they would - we are all paid commission - and only when your loan closes - and THE LAST thing we want is a customer who is unhappy with the rate - the loan - or us - and we do all we can to fix what we can to make you happy. 

I hope this helps you to understand why your rate costs you - and us what it costs ...

Jumping in late to this one, I work for a large Mortgage Banker, we are at 4.00% today with a 1pt credit back to you the borrower for closing costs on a 60 day lock. 1pt is 1% of your loan size. Wells Fargo typically quotes a tad high especially on their float down option (they're hedging) and will never really drop you to today's rates usually they will go to .125% higher than if you started over with someone new, but getting the float usually makes the borrower happy anyway. The guy at Wells just might not be able to get there today on their float down policy, the pricing has to move by X amount to lower the rate and it may not be there for him with today's pricing for Wells.

In your case if HSBC is offering 3.875% with no points and 60 days (or can you close in 45?) I would go with them. Why even stay with Wells? .375% will add up over time!

Dan

Your float down rate won't be the actual market rate you can get elsewhere, so wiegh out the long term costs versus savings. It costs the HMC .25 pt to return the loan to float and then relock on the current price code. So you'll either end up paying the .25pt or it will be built into your new interest rate. The other issue is all WF refinances are locked-in with a manditory 60 day lock regardless of when the loan is closing. I lost numerous loans over the past two years because of pricing changes and the WF fulfillment sites couldn't close a refinance in less than 60 - 90 days. Some loans dragged on as long as 6 months. It was extermely frustrating!

Blair Beard:

The other issue is all WF refinances are locked-in with a manditory 60 day lock regardless of when the loan is closing

HUH?  Never heard that before with Wells and I close refis every single month with them.  No such thing as mandatory 60.  Possible that different rules exist for WF retail vs. WF wholesale.  If there really is 60 day mandatory...that is retail only.

That was retail only.

I was refering to the retail policy not the wholesale.