Mortgage 101: Locking In Your Rate
Mortgage Rate Locks: The Key to Savings
Mortgage interest rates are tied to the Federal Funds Rate, which is the interest rate that banks charge each other to borrow money. In turn, the FFR is directly influenced by the Federal Reserve.
What’s a Rate Lock?
Simply put, a mortgage rate lock is a legal agreement in which a lender promises to reserve a fixed interest rate at a fixed number of points for a specified time period. If you don’t lock in your rate soon after your offer is accepted then you’ll be subject to whatever fluctuations influence mortgage interest rates until the day you actually close, and those fluctuations can be costly.
When to Lock in Your Mortgage Rate
Lenders generally offer the option to lock in your mortgage interest rate for 15, 30, 45, or 60 days. Shorter or longer terms may be an option though, depending on your circumstances. The best choice for you will depend on a number of factors, including how long your loan will take to process, and the length of time you anticipate will pass before you complete your home purchase. It’s also important to note that buyers must typically wait until a purchase offer is accepted before requesting an interest rate lock-in. That way, the lender will have all the pertinent details necessary to offer a concrete set of terms and conditions.
How Much Do Mortgage Rate Locks Cost?
Some lenders charge fees for rate locks and others do not. Just because there may not be a fee, though, doesn’t mean there’s no cost. Longer rate locks usually entail higher interest rates or require the buyer to pay points, and each point equates to 1% of the total loan value.
Most people wouldn’t buy a tablet or television without shopping around, yet so many simply accept the first rate lock offer they receive. When considering mortgages and rate locks, it definitely pays to compare options. Different lenders may offer considerably different rate lock options, so it’s smart to make sure you’re getting the best deal. Also, before giving your OK on a mortgage rate lock, be sure to read the fine print. Some lenders’ contracts allow them to raise rates up to a certain cap within the rate lock period; others include float-down provisions that permit rates to fall if the market trends downward. You may also find considerable differences in post-lock and renewal options, which could become very important if you’re unable to close before your lock expires.
Submit Your Request
Once you’ve decided on a lender and zeroed in on the optimum combination of interest rate, term, cost, and conditions, you’ll need to request your rate lock. Make sure you get the contract in writing, and if you’re not sure how to complete your request then ask your agent or real estate attorney for assistance.
Lock in a Great Rate
If you’re fortunate enough to time your mortgage rate lock just right then you should end up with an attractive interest rate on the perfect home. We hope this article has brought you a few steps closer to making your dream of affordable homeownership a reality.
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