Why Do Longer Rate Locks Cost More?
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.Why do longer rate locks cost more? Mortgage Headquarters of Missouri shares with you the reason here.
It's All About Risk
Between the times you make application and close your loan, interest rates will do what they always do—change. At times, the rate of change is exceptionally volatile, even from one minute to the next. "Locking in" your interest rate protects you from the risk of rising rates. It's just like purchasing an insurance policy.
Risk is Not a One-Way Street
Protecting yourself from rising rates means you transfer that risk to the lender. In turn, lenders must purchase "hedges" to provide protection. These are financial instruments such as U.S. Treasury Bonds whose values move in the opposite direction of rates. A hedge can be expensive, and just like other forms of insurance, longer policy periods cost more. As a result, longer locks have higher costs, which are reflected in the cost of your loan.
Risk Varies Based on Loan Type
Before you decide whether to avoid or pay the premium for a longer lock, take into account the kind of loan you’re considering. Different loan types may have less volatility in the rate from week-to-week. For example, an adjustable rate loan may be tied to a slow moving index rather than the day-to-day market.
MHQ Mortgage Can Help You Lock in a Rate!
No one knows with absolute certainty what interest rates will do during your application and approval process. One thing is certain: Your loan has to be locked before it can close. For many, the decision is better made based on personal comfort rather than skill in predicting the markets. If you will be most comfortable knowing you are safely locked in, then a longer lock may be less stressful than taking your chances on getting a better rate later. Either way, MHQ Mortgage is here and happy to help!
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
NMLS # 1229111
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.Why do longer rate locks cost more? Mortgage Headquarters of Missouri shares with you the reason here.
It's All About Risk
Between the times you make application and close your loan, interest rates will do what they always do—change. At times, the rate of change is exceptionally volatile, even from one minute to the next. "Locking in" your interest rate protects you from the risk of rising rates. It's just like purchasing an insurance policy.
Risk is Not a One-Way Street
Protecting yourself from rising rates means you transfer that risk to the lender. In turn, lenders must purchase "hedges" to provide protection. These are financial instruments such as U.S. Treasury Bonds whose values move in the opposite direction of rates. A hedge can be expensive, and just like other forms of insurance, longer policy periods cost more. As a result, longer locks have higher costs, which are reflected in the cost of your loan.Risk Varies Based on Loan Type
Before you decide whether to avoid or pay the premium for a longer lock, take into account the kind of loan you’re considering. Different loan types may have less volatility in the rate from week-to-week. For example, an adjustable rate loan may be tied to a slow moving index rather than the day-to-day market.
MHQ Mortgage Can Help You Lock in a Rate!
No one knows with absolute certainty what interest rates will do during your application and approval process. One thing is certain: Your loan has to be locked before it can close. For many, the decision is better made based on personal comfort rather than skill in predicting the markets. If you will be most comfortable knowing you are safely locked in, then a longer lock may be less stressful than taking your chances on getting a better rate later. Either way, MHQ Mortgage is here and happy to help!
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
Comments
Post a Comment