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 When
is the Best Time to "Lock" An Interest Rate?
In many cases, we advise our clients to lock their interest rate
at the earliest opportunity. A mortgage loan cannot be closed without
locking in a rate, and there are three main elements to take into
consideration:
- Interest Rate
- Points
- Length of the lock
Why Should You "Lock" Your Interest
Rate?
Locking in on a rate does not obligate you to commit to a loan until
the loan is actually closed. The lock simply eliminates any risk
of you, the borrower, being exposed to market volatility. It provides
the security of having time to complete the mortgage and Real Estate
transactions with some sense of order. The lender must disburse
funds to complete the transaction within the rate-lock period, or
else the original commitment to provide a loan at a certain interest
rate will expire.
Is There a Cost to "Lock" an Interest
Rate?
When a lender permits an extended lock-in period, the borrower will
usually see either a higher interest rate or more points associated
with the loan. The lender does this to minimize their own exposure
to market volatility; hence the borrower pays for the lender to
take on this risk.
For example, a 30-day rate lock commitment may
cost the consumer one-half point, while a 60-day rate lock commitment
could cost 1 full point. If the borrower needed an extended lock
period, but did not want to pay points, the lender could make up
the difference in the interest rate. In this case, typically, a
60-day lock would have a higher interest rate than a 30-day lock.
Our standard procedure is to lock in a rate
as quickly as possible once we have received the loan application.
We let our clients know that while interest rates fluctuate daily,
most lenders do not want to lose any business. We know that in many
cases, if there is a significant rally in the market that causes
interest rates to drop .25% or more, we can ask the lender to renegotiate
the rate or understand that we will take the loan to another lender.
Often the lender allows for a renegotiation of the rate to avoid
losing the loan to another lender.
The Risk Of Not "Locking" An Interest
Rate
If we allow clients to sit on the fence and not lock in a rate quickly,
they would be exposed to market volatility. Then, if rates do increase,
the borrower may be unable to qualify for the loan they want, which
is a situation we try to avoid.
By knowing your needs and working intimately
with you to make the right decisions, we know you they will feel
confident and more at ease through the mortgage financing process.
Contact us today to
talk with a loan officer about your home financing needs.
[Dealing
with Credit Score Challenges] [Good
Credit Translates into Lower Interest]
[Learn
About Credit Remediation] [Learn
the Five Factors of Credit Scoring]
[The Truth About Home Appraisals] [Mortgage
Rates]
[Learn the Five Factors
of Credit Scoring] [Return to Articles page]
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Mortgage Master Service Corporation
24909 104th Ave SE, Suite 100
Kent, WA 98030
Phone: 253-859-5300 Toll Free: 800-583-7200
Fax: 206-382-9612 (Seattle line)
National Mortgage Licensing System & Registry (NMLS)
NMLS ID 40445
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