By David Parker, Esq.
QUESTION: I am about to settle on a house and I am worried about the interest rate that I will get on my loan. I met with a Lender but I don’t have anything in writing. I am worried that interest rates might increase before my settlement. Can I get something in writing from my Lender?
ANSWER: You have raised a very common concern for many homebuyers. Interest rates are constantly rising and falling and it is often difficult for buyers to understand if their loan rate is “locked in” or guaranteed, or whether they should gamble and see what the market does. Even after making a decision to “lock in” a loan rate, many borrowers do not necessarily get any written proof that they have chosen a particular loan from their Lender.
Fortunately, under Maryland law, a lender who makes a loan to a borrower which will be a first deed or trust on a residence which is going to be occupied by a borrower must provide the borrower with a financing agreement within 10 business days after the date the loan application is completed. This agreement must provide the term and principal amount of the loan , the type of loan being offered, the rate of interest , the points to be paid (i.e. loan origination fee or loan discount fee) and the term during which the financing agreement remains in effect.
Unless some of the above provisions are subject to future determination, then the agreement is final. If any of the provisions are subject to change, the Lender must provide the borrower with a commitment at least 72 hours before settlement which outlines the rate and terms of the loan.
If you have not received this required financing agreement, you should immediately contact your lender to obtain one. You should carefully review the agreement to be certain that it matches all of the terms that you verbally discussed.
For those loyal followers who have read my columns over the years, you may recall that I annually, or at least every once in a while, provide a public service column designed to personally help you, the public. This week, I am devoting the rest of my column to helping you understand interest rates and when to “lock in” your loan.
The information provided comes from two extremely valuable resources. The first source of information is my vast experience as a real estate lawyer and consists primarily of things that I make up. The second source of information is a Free book which I received when I subscribed to Money Magazine, or maybe it was Sports Illustrated, which explained in plain language everything you need to know about money and rates and something about High Yield Bonds or maybe it was Barry Bonds, but it seemed like it involved money.
As an aside, I subscribed to Money Magazine after being enticed by a cover story proclaiming that they had identified the “Seven Best Mutual Funds in America” only to learn that in EVERY issue of Money Magazine they identify The Seven Best Mutual Funds in America. I have now calculated, based on my one year subscription, that there are currently 84 Mutual Funds which are on the list of the “Seven Best Mutual Funds in America”, all of which claim to be the Number One Fund in America.
In order to be ranked the Number One Fund in America, the mutual fund manager must place an ad in Money Magazine, or Sports Illustrated, bolding proclaiming that “We are the Number One Fund in America!” While this may not be the most statistically accurate way to determine who is Number One, it certainly makes for an interesting list when we see that of the 84 mutual funds in Money Magazines Top Seven Mutual Funds, EVERY SINGLE ONE OF THEM IS RATED NUMBER ONE IN AMERICA!
This leads to the real topic of this column, which is predicting interest rates. Interest rates are tied to bonds and the two tend to fluctuate in opposite directions. So if Barry Bonds hits a homerun, then rates will go up, but if the new James Bond movie is a bust, then rates will go down, or maybe up. If the bonds go up, this can also lead to inflation, which also happens if too many steroids are injected into a certain baseball player, if you know what I mean, whereupon the gold fillings market could plummet, thus causing four out of five dentists to recommend silver fillings instead, ultimately causing a recession and instability in interest rates.
The only solution is for the Board of Governors of the Fed, which is a chain of department stores in the mid-west, to call a meeting whereupon Alan Springsteen, the leader of the Board , declares that rates must be raised. This means that you should lock in your interest rate right now, as soon as you finish this column, because Money Magazine is about to issue a special bonus report on the “Seven Best Mortgage Companies in America” and you want to make sure that your Lender is one of the 84 Best Lenders in the Top Seven.