October 11, 2012

Locking in your Mortgage Rates

Get a Rate Quote to Lock In

After your original mortgage application is accepted -- but before your loan closes -- you may be allowed to lock in a mortgage rate. This is a difficult decision to make, because you’re not psychic, and thus can’t really be sure the direction that rates will take over the next 30 to 60 days. If rates are in an upward mode, procrastinating could hurt, and cost you a lower rate. But if rates are trending downward, you could lock in a rate that will be higher by the time everyone is ready to sit down at the closing table. Even professional mortgage brokers, who have vast experience watching rates, can’t be depended upon to make the right call. They may be in a better position to make an informed decision, but no one really knows for sure.

You may be better off taking a long term perspective, and realizing that paying a quarter or half point now won’t make that much of a difference over the long-term.
If you’re confident that a rate lock is right for you, get it in writing. Some lenders have forms that will describe the exact terms of the lock. Don’t allow the agreement to be made orally – when the time comes to close, you don’t want to be dependent on somebody’s memory as to what you agreed upon.

Some lenders will charge you a fee if you decide you want to lock in a rate, along with the number of points that you’d like to pay. If the loan doesn’t close for any reason – even if it’s the bank’s fault – you may not be allowed a refund. The fee will vary from lender to lender, and will depend on the length of time of the lock-in period. You may even find a lender who charges no fee.
There are three different options for rate locks. The first is a locked-in interest rate, and locked-in points, which lets you lock in both for a period of 30 to 60 days. The second is where you lock in the interest rate, but float the points. If rates drop during the lock-in period, you may be able to lower your points. If they rise, the opposite will occur. The third choice allows you to float both the interest rate and points, with the option to lock it in sometime after you apply, but before you close.

As long as you close within the designated time period, your lock-in will take affect. But if you fail to close, you might lose the interest rate you agreed to, and will have to start the process all over again.
By staying on top of financial trends and planning accordingly, you can time your rate lock to get the best mortgage rate possible. In other words, when the tide is low, put a call into your lender and lock in that rate. You'll enjoy waves of prosperity if you do.

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