Should I lock a mortgage rate today?
You should lock a mortgage rate if three conditions are met:
When you buy a home, you have a signed sales contract. You are approved for the mortgage loan you need. You have compared lenders to find the lowest interest rate available
Most borrowers shouldn't try to time the market when setting an interest rate. Even experts often don't know whether interest rates will rise or fall from one day to the next.
The most important thing is to compare loan options and find the lowest interest rate for you. Then it's time to lock up.
Check your entitlement to the tariff lock (May 27, 2021).
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What is a Mortgage Interest Freeze?
When you apply for and approve a mortgage, the lender will quote a specific interest rate on your home loan. If you like the deal on offer, you can set that rate on the final mortgage.
An interest freeze guarantees that your interest rate will not change between the time you submit an offer and the time you close. This protects you from rate hikes and allows you to secure a low rate once you have been approved.
However, for a tariff block to be valid, you must close it within the specified time period (often 15 to 60 days). And you won't be able to make any changes to your mortgage application before closing.
Most lenders offer a fixed interest rate free of charge up to a certain deadline.
If delays are likely to postpone your close date beyond the deadline, you can often extend your rate lock. But it will likely cost you.
When you lock your interest rate, make sure that the rate lock agreement is long enough to cover the time to complete your loan to avoid additional fees.
When can I lock a mortgage rate?
"Borrowers can lock their interest rate anytime after completing a mortgage loan application," said Matt Hackett, operations manager of Equity Now.
"Once the lender has your complete application and credit report, they often have enough information to lock themselves in later in the process, up to about 10 days before closing," said Melissa Cohn, executive mortgage banker for William Raveis Mortgage .
Borrowers can lock their interest rate anytime after completing a mortgage loan application.
"However," warns Hackett, "each lender has their own internal guidelines that govern the interest freeze process."
You should consult closely with your lender about the timeframe and estimated cut-off date to ensure your interest freeze period doesn't expire before the loan ends.
Check your entitlement to the tariff lock (May 27, 2021).
When should I lock a mortgage rate?
When to lock an interest rate depends on whether you're buying a home or refinancing, according to Mike Jones, National Sales Manager, Union Home Mortgage.
Homebuyers should lock a mortgage rate once they have identified a property they want to buy and are approved for a mortgage loanHomeowners are looking for refinancing should lock a mortgage rate when they find a new loan with the best terms and interest rates for their financial goals
Mortgage rate forecasts can also influence your decision.
Good candidates for an interest freeze period are those who believe that interest rates will rise by the time it is closed – or who don't want to take the risk that interest rates will rise – says Hackett.
But the most important thing is that you find your lowest rate before you lock out.
Often times, you can save as much by shopping among lenders as if you put your lock on a day when interest rates are falling.
Risks of waiting for the lock
It is important for home buyers to lock your loan on hold once the sales contract has been accepted by the home seller.
“Borrowers should put their loan on hold when the property purchase agreement is completed so they can manage the cost of the interest lock while ensuring that the lockout period is long enough to complete the transaction,” recommends Jones.
He warns that "Failure to set an interest rate during this time may affect your ability to receive the loan."
This is because as interest rates go up, a buyer's monthly mortgage payment could go up. If the monthly payment increases enough, they may no longer be eligible for the loan.
Waiting to lock an interest rate and interest rates rise significantly can jeopardize your mortgage approval.
So locking your interest rate will not only secure you good business, it will also secure your mortgage approval and ability to buy a home.
Just make sure your tariff lock-up period is long enough to get you through to the final day.
"While most borrowers would think they could set their interest rate early for fear of rising interest rates, this may not be the ideal strategy," said Rocky Foroutan, CEO of LenderHomePage.
“Most lenders offer free lock-up periods of 30 to 45 days. However, if the subscription process takes longer than expected or your close date is postponed, your free lock-up period is likely to expire and you will need an extension. "
"If you choose to renew," Foroutan continues, "the lender can either charge you a fee or increase your interest rate slightly."
How long does a mortgage lock last?
Mortgage lenders typically offer free 30, 45, or 60 day interest freezes.
“A mortgage freeze usually lasts at least 30 days. This leaves time to sell the house, ”explains Jeff Zhou, CEO of Fig Loans.
However, there are options to extend the lock for longer periods of time – up to 12 months for certain loan types – for an additional charge.
“If the mortgage rates match your suspended rate after your lockout expires, you can often renew it for free. However, some lenders charge an extension fee regardless of the interest rate when the lock expires, ”says Cohn.
You may be billed for an extension of the tariff lock in the form of a separate fee or a slightly higher interest rate.
The further you postpone the deadline for tariff blocking, the more expensive it can be.
"This is because the lender has to hedge this interest rate risk, and security with an extended rate lock is generally riskier and more costly for the lender," says Hackett.
In other words, charging more upfront about a loan lock fee will reduce the risk of your lender making less on your loan if interest rates go higher at the time you close.
Find your lowest mortgage rate. Start Here (May 27, 2021)
What if interest rates fall after I lock my mortgage rate?
It's not uncommon for prices to drop after being locked. In this case, you have a few options.
First, you can keep your locked rate. It may not be worth trying to renegotiate your lock over a small rate reduction.
However, if interest rates drop dramatically during this period, you may be able to take advantage of new, lower interest rates using one of the following strategies.
Using a Float Down Locking with Another Lender
Many lenders allow you to "float down," which will lower your interest rate to match the market rate if interest rates go down during your freeze period.
Usually the lender will charge a fee or a higher interest rate if you opt for a float down.
"Most lenders offer a float-down provision because they ultimately want to keep you as a customer more than you want to keep you at a higher rate," Zhou said.
However, some lenders don't offer a float-down option.
"If so, you can always abandon the lender's loan application and interest freeze and apply again to another lender with a lower interest rate," suggests Cohn.
Remember, even after you have set an interest rate, you are not tied to a lender until you have taken out the loan. You can always walk away before close of business and find a lender who has a better deal. The downside is that you have to reapply and go through underwriting again, which adds to your time to graduation.
Alternatively, you can stick to the higher rate you set and proceed to close as planned.
"Or you could try negotiating with your lender about a lower rate that they might or might not offer," says Hackett.
What are today's mortgage rates?
Current mortgage rates are at historic lows. That means better deals for first-time buyers and current homeowners.
You may be able to gauge how good a deal you are getting by comparing your mortgage rate with the overall market. Foroutan recommends that you monitor prices carefully and compare your locked or unlocked rate to the national average.
Remember, however, that the prices and national averages shown are for reference only.
Your own interest rate can look very different from today's mortgage rates, depending on factors such as your creditworthiness, down payment, and loan type.
To find your best rate, you need to "look for different rates from different lenders," says Foroutan.
They only know that comparing personalized interest rate quotes from more than one mortgage company will give you the best deal. Once you're sure you've found the best deal, it's a good time to lock your mortgage rate on.
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