Once a potential home buyer has zeroed in on the desired home or lending source, has factored in the closing costs and monthly payment obligations, and has scouted the most affordable interest rates that fit their respective budget, it is now the time to lock in that rate to make the whole process financially feasible. With a careful eye watching rate fluctuations, which can change dramatically and quickly, even a single percentage, can affect the entire course of events. Naturally, the rate moving up would be the primary concern, costing potentially thousands in added interest over the term of the mortgage. Therefore, getting a ‘lock’ put on the interest rate offer is the best strategy. Be sure to check out current mortgage rates before you meet potential lenders!
Strategies for Locking in Your Interest Rate
Locked until Closing
During the initial phases of the loan application process, acquiring a rate-lock from the lender specifies and secures an interest rate that will be applied to the mortgage terms during the approval process. The rate is held at the quoted percentage for the duration of the time-frame required for final loan approval, and dependent upon the borrower meeting all the necessary qualifications for the loan. The lock period is usually from 30-60 days, depending on the market, or as long as the loan process takes to reach closing.
Get the Rate in Writing
The most important method of security is to get the lender to stipulate each aspect of the rate quote and loan terms spelled out in writing. A borrower should never assume that the lender has in fact ‘locked’ the rate, simply because there is a chance the rate is being ‘floated’ to allow for a better yield spread premium, meaning that the rate will decrease in the lender’s favor during the approval process, or that a rate could have been ‘misquoted’ during initial negotiations. In addition, getting the rate-lock in writing eliminates the chance of the lender or broker altering the original loan specifications, like raising margins, adding points or pre-payment fees, changing the interest rate index the loan is tied to, or perhaps even which loan program the original offer was categorized.
The more research you do before speaking to lenders, the better. If you go in prepared, you will ensure that you are are able to lock-in the lowest rate possible that you are qualified for.