Wondering about locking your mortgage interest rate? If you’re looking to refinance or in the midst of buying a new home or on the brink of buying a new home, you may be asked by your loan officer “Do you want to lock in the rate?” You have two choices here:
- Float the Rate
- Lock the Rate
If you like to roll the dice then “floating” the rate might be a good option. Floating the rate means that you are waiting to see what the market does, prior to securing or locking the rate. This leaves you open to market swings. Of course, in this scenario you are hoping the interest rate market improves, giving you a better rate and a lower payment. Also, by waiting, a shorter lock term usually yields a slightly better price/rate. (I’ll explain that further below.) Floating the rate can be a bit risky, especially on a purchase transaction. On a refinance, you could cancel or delay the transaction until your target rate is met. With a purchase, there are deadlines to be met and your escrow deposit can be at risk.
What Makes Mortgage Interest Rates Move Up and Down?
By locking the rate you are guaranteeing your interest rate and payment. (The lock and loan is subject to qualifying.) If the market spikes, you are protected. Conversely, if the rates drop you are still locked at the same rate. It’s nearly impossible to time the bottom of a market so I don’t usually recommend trying it.
After all, mortgage rates change daily and sometimes multiple times per day. In fact, mortgage rates move up and down based on the performance of the bond market. Below is a snapshot of the U.S. 10 year treasury as published by Marketwatch.com. It’s a 1 year history from March 2, 2022 to March 3, 2021. See how much it moves up and down. Lender and brokers get interest rate changes everyday. In a turbulent market, we see them as many as 2-3 times a day. Just like the stock market, you don’t know the top or the bottom until it’s too late. If the deal and payment make sense for you, lock it and forget about it. Maybe it’s my conservative-self talking, but I believe it’s the best advice for most people and situations.
A few key questions to ask when considering a interest rate lock:
- How long is the lock good for?
- What do you need to lock the rate?
- Is there a fee to lock?
- When can I lock?
- What if rates go down?
How long is the lock good for? Presently, a standard rate lock is for thirty days. This is usually adequate time to process your loan. If it is a purchase and the escrow period is for a lengthier time, you should discuss other options. Forty-five and sixty days are also somewhat common. You can expect to pay more for a longer lock period so the longer the rate lock period, the higher the price/rate. The opposite is also true. If you have been floating your rate, a fifteen day rate lock will be a lower price/rate than a thirty day rate lock.
To lock the rate, you will need to take an application. We will discuss your desired loan, income, assets, etc. We will also need to run credit.
Okay, we’ve taken your application. Is there a fee to lock? At LifeSource Mortgage there is not a fee to lock in the interest rate.
The lenders we work with have different hours that we can lock the rate. Generally, it’s normal business hours Monday-Friday, but I do have some that cut it off a little early and some that go very late, even in to the weekend.
What if rates go down? Many lenders I work with have a one-time float down or rate re-negotiation policy available during the processing of your loan. It doesn’t happen very often, as numerous criteria have to be met. In addition, each lender has different rules and guidelines associated with their policy. Generally, rates have to improve a fair bit. You can typically only exercise this option once during the processing of your loan and some lenders limit it to specific times during the processing of your loan. There is also typically a cost.
To discuss your options, reach out to us today!
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