What You Need to Know About Locking in Rates
Purchasing a home could be one of the most impactful financial decisions you will make in your life. As a smart consumer, you want to capitalize on the lowest possible rate. But as ever-changing as the mortgage lending industry is, it's not always so easy. With interest rates changing as often as they do, choosing the right time to lock in can be difficult. It's times like these you need to rely on a trusted Lake of the Ozarks mortgage lender to help you through the process. But first it's important to understand how rate locks work.
What is a 'Rate Lock'?
When you're promised a "rate lock" from the lender, it means that you are guaranteed to keep a specific interest rate for a certain number of days for your application process. This keeps you from going through your whole application process and finding out at the end that the interest rate has gone up.
Rate lock periods can vary in length, anywhere from fifteen to sixty days, with the longer ones usually costing more. A lender may agree to lock in an interest rate and points for a longer period, like sixty days, but in exchange, the rate (and sometimes points) will be more than with a rate lock of a shorter period. For example, a borrower who chooses a 30-day lock on a loan may pay a 4.875 percent rate and zero points, while a 60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly higher rate with a half-point.
When To Lock In
Individual borrower circumstances influence the best time to lock. For example, borrowers concerned that even a small increase in the interest rate could cause a budget problem should lean toward locking in the rate as early as possible, especially in a market with increasing mortgage rates.
The earliest point at which a borrower can lock in a loan is after the initial loan approval. However, many borrowers wait until they have found a home to purchase because they don’t know how many days it will take to find a home and have an offer accepted. They worry that by locking in too early, they may miss the opportunity for a better rate before they complete a purchase or get stuck paying extra to extend the lock once it expires.
And remember, a rate lock is not guaranteed in all circumstances. Borrowers can lose a rate lock if their circumstances change before settlement, such as a shift in their credit score or in their debt-to-income ratio. It's important that the borrow doesn't do anything to affect their credit or income during this time.
Additional Ways to Save on Interest
In addition to choosing the shorter rate lock period, there are other ways you can attain the lowest rate. A larger down payment will result in a better interest rate, since you will have more equity at the start. You can pay points to improve your interest rate for the life of the loan, meaning you pay more up front. One strategy that makes financial sense for some is to pay points to reduce the interest rate over the term of the loan. You pay more initially, but you will come out ahead, especially if you keep the loan for the full term.
It's not easy to determine the perfect time to lock a loan, but MHQ - Mortgage HeadQuarters can give you advice on what we would do if we were in your shoes. We can also check with the loan processor to get a feel for how long it will take to have the loan go through underwriting, which can better help you decide if and when to lock in your rate.
Locking in a rate for a loan can save you money in the future and help you to achieve your financial goals. If you have any questions about mortgage rate locks at the Lake of the Ozarks, feel free to contact us! MHQ Mortgage HeadQuarters are your mortgage professionals at the Lake of the Ozarks and would be happy to assist you in financing your dream home at the Lake!
Mortgage Headquarters of Missouri, Inc
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
Email: info@mhqmortgage.com
NMLS # 1229111
What is a 'Rate Lock'?
When you're promised a "rate lock" from the lender, it means that you are guaranteed to keep a specific interest rate for a certain number of days for your application process. This keeps you from going through your whole application process and finding out at the end that the interest rate has gone up.
Rate lock periods can vary in length, anywhere from fifteen to sixty days, with the longer ones usually costing more. A lender may agree to lock in an interest rate and points for a longer period, like sixty days, but in exchange, the rate (and sometimes points) will be more than with a rate lock of a shorter period. For example, a borrower who chooses a 30-day lock on a loan may pay a 4.875 percent rate and zero points, while a 60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly higher rate with a half-point.
When To Lock In
Individual borrower circumstances influence the best time to lock. For example, borrowers concerned that even a small increase in the interest rate could cause a budget problem should lean toward locking in the rate as early as possible, especially in a market with increasing mortgage rates.
The earliest point at which a borrower can lock in a loan is after the initial loan approval. However, many borrowers wait until they have found a home to purchase because they don’t know how many days it will take to find a home and have an offer accepted. They worry that by locking in too early, they may miss the opportunity for a better rate before they complete a purchase or get stuck paying extra to extend the lock once it expires.
And remember, a rate lock is not guaranteed in all circumstances. Borrowers can lose a rate lock if their circumstances change before settlement, such as a shift in their credit score or in their debt-to-income ratio. It's important that the borrow doesn't do anything to affect their credit or income during this time.
Additional Ways to Save on Interest
In addition to choosing the shorter rate lock period, there are other ways you can attain the lowest rate. A larger down payment will result in a better interest rate, since you will have more equity at the start. You can pay points to improve your interest rate for the life of the loan, meaning you pay more up front. One strategy that makes financial sense for some is to pay points to reduce the interest rate over the term of the loan. You pay more initially, but you will come out ahead, especially if you keep the loan for the full term.It's not easy to determine the perfect time to lock a loan, but MHQ - Mortgage HeadQuarters can give you advice on what we would do if we were in your shoes. We can also check with the loan processor to get a feel for how long it will take to have the loan go through underwriting, which can better help you decide if and when to lock in your rate.
Locking in a rate for a loan can save you money in the future and help you to achieve your financial goals. If you have any questions about mortgage rate locks at the Lake of the Ozarks, feel free to contact us! MHQ Mortgage HeadQuarters are your mortgage professionals at the Lake of the Ozarks and would be happy to assist you in financing your dream home at the Lake!
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
Email: info@mhqmortgage.com
NMLS # 1229111
Comments
Post a Comment