Mortgage interest rates are prone to fluctuations from when you file a loan application to your closing date. With this in mind, most people are turning towards rate locks to ensure that their mortgage loans don’t spring up any surprises relating to high interest margins.
While this venture is deemed smart, there’s a constant query along the lines of — what’s the best time to lock in a mortgage? Currently, there’s no definite answer to this question as rates can rise and fall in seconds.
For those tired of making the regular “should I lock my mortgage rate today?” Google searches, this guide aims to dish out vital information. Below, we’ll examine the mortgage rate lock concept, the pros and cons of doing this, and the best time to take on this activity. Let’s get started.
What Is a Mortgage Rate Lock?
A mortgage rate lock protects you against interest rate fluctuations for a specific period. However, it’s crucial to note that you’ll have to seek a rate lock extension if you can’t make timely mortgage payments.
You can apply for a rate lock once the lender has approved your request. Upon activation, you have access to assured interest rates.
If you’ve already locked your mortgage loan and interest rate rises, you can access lower rates. On the flip side, if interest rates fall, you can’t revert to the lower rates, and you’ll be stuck with higher rates — except if the lender offers a float down option.
As a homebuyer refinancing a real estate property it is a “no brainer” that you’ll seek the best interest rate. If this is achievable during the course of your mortgage, it’s possible to save a few hundred dollars as you make annual or monthly payments.
How Does Mortgage Rate Lock Work?
When you lock a mortgage rate, what happens? Well, expect one of the following three scenarios to take place.
Rates Go Up
Rising interest rates puts you at an advantage. During this period, you’ll still have access to lower interest rates.
Rates Go Down
Interest values reducing after a rate lock doesn’t augur nicely with homebuyers as they can’t take advantage. Therefore, you’ll have to pay the higher locked-in rate even if lower values are prevalent.
Rates Remain Static
When rates remain stagnant, there are neither winners nor losers. This scenario happens if you lock in a mortgage and there’s no upward or downward rate movement.
This outcome is frustrating for most, as setting locks might cost money, depending on the lender. However, not all hope is lost as the market can turn around, giving you the mortgage interest rate you envisioned.
Getting a Mortgage Rate Lock: An In-depth Guide Into the Steps Involved
Before typing “should I lock in my mortgage rate today” in the Google search bar, having insight into the steps involved in setting one up is crucial. Your mortgage rate is crucial as it gives you a clearer picture of what you’ll pay as monthly mortgage payment. Thus, it’s essential to make concerted efforts to ensure you get low rates. Regardless, precision is required here as a percentage point in the negative can see you settling a loan long after its supposed timeline. Here are steps vital in creating a rate lock.
Know the Precise Point to Make a Deal
With mortgage rate locking, you have to know the exact time to execute this activity seamlessly. Typically, you can lock your mortgage rate once you’ve received a loan offer.
Setting a rate lock happens once the necessary parties have signed the purchase agreement.
But it’s a different ball game in the refinancing arena. Here, homeowners can lock in rates when submitting loan approval documents.
The point of locking your rate is to safeguard interest values from the time you get loan specifics to when the loan closes. So, upon loan approval, it’s crucial to lock in your rate immediately.
Know the Cost of a Typical Rate Lock
While we’ve indicated the exact point to access a rate lock in the homebuying process, it’s time you consider another aspect — pricing. Although the cost of locking rates might differ, depending on the lender, it’s crucial to note that rate locks typically come with a fee.
It’s a no-brainer — mortgage lenders want to be profitable. Since some borrowers might be fortunate to have deals that translate into low rates, lenders can decide to insert a small fee to augment their losses.
To get correct values on these charges, contact your preferred mortgage lender.
Regardless, we can give a decent estimation of these values. The rate lock fee on most mortgages is 0.2 to 0.5 percent of the total loan. If you’d like an extension when your rate lock expires, it’s important to note that you’ll encounter a charge set by the lender.
Enter a Rate Lock Agreement
There are so many loans available to meet the varying needs of homebuyers. Thus, locks have become crucial for those seeking mortgage loans.
Your lender should often ask if you’re interested in a rate lock. However, in rare scenarios where they don’t, make inquiries yourself.
The lender should give you the terms surrounding your loan’s rate lock. Once they do, it’s time to map out your home buying strategy while they wrap up the loan deal.
Examine the Rate Lock’s Timeline
Before you lock in a mortgage, getting perspective on the available timelines is necessary. A decent rate lock should be valid for 30 to 60 days. Depending on the lender, you should be able to extend. However, it’s vital to understand that extension when the lock expires will incur a charge set by the lender.
Just before you choose a timeline, ensure it tallies the time it’ll take you to close out a loan. If you’re unsure, relay your concerns to the lender, and they should give an accurate estimation on what time frame suits your repayment schedule.
Understand Your Extension Options
It’s difficult to know if you will be able to close a home before the rate lock period expires.
No matter how committed you are to getting your loan all sorted, this process might encounter some clogs.
When your lock in period closes, you can consider any one of these alternatives:
- Rate lock extension
- Accept current mortgage interest rates
Here, having a rapport with your lender is crucial. However, note that extending your lock will demand a transaction fee. Nonetheless, avoiding this scenario altogether is possible if you pay off the loan before the closing date.
Brace Yourself for Significant Drops
From the start of your mortgage application process to your loan closing, rate values undergo many changes. Nonetheless, this negative shouldn’t dampen your commitment to locking your mortgage rate.
You never know — you could be on the receiving end of a great rate.
In case you have reservations, you can ask your lender for pointers. Since they’re aware your next goal might be withdrawals and reapplication, they’ll strive to avoid “fallout risk” by helping you in the best way possible.
Is There a Specific Timeline to Lock in Your Rate?
To understand this segment, we’ll focus on a popular query — what is the best day to lock my rate? Although there’s no set answer to this, Mondays might get you what you’ve been seeking as it’s a relatively slow day.
However, pay attention to midweek fluctuations as this period could be the best time to lock in your rate. While we can’t give you assurances, you might be lucky to receive a lower rate when there’s a dip.
With fluctuations reigning supreme on rate locks, you might have the desire to see how things pan out and if you can find a lower rate. While this could come off as top-tier financial sense, you’ll need to be meticulous in checking market interest rates.
It’s up to you to make the call. While we advise staking a claim once you come across rates that suit your home buying endeavors, floating around to see if you grasp a better rate might yield positives.
Should You Lock in Your Mortgage Today?
Those asking “should I lock my mortgage rate today?” might want to put on their reading glasses as we’ll be examining the advantages and disadvantages of this activity.
Without further ado, let’s have a look.
Locking in a mortgage grants you these positives:
- Shields you from higher interests on a mortgage loan
- Some lenders offer a float down option
- It makes the home buying process easier
- Lower rates keep you calm
Here are some “not so” nice things about a mortgage rate lock:
- Payment required to extend a rate lock period
- Lenders with a float down option are pricey
- In select scenarios, rates might stall
Mortgage Rate Changes: Factors That Play a Major Role in This Phenomenon
This factor is self-explanatory. When the economy has its bases covered, rates are likely to increase. On the flip side of things, adverse economic events can result in a substantial decline in rates.
The Federal Funds Rate
The federal funds rate is the stipulated value banks, and other financial institutions use to borrow money.
Controlled by “The Federal Reserve,” these values can result in extreme changes in your mortgage rate.
By changing the federal funds rate as they deem fit to dispel inflation. This action, in turn, can result in a rise and fall in mortgage rates.
Demand for Mortgage
The supply and demand percentages on mortgages can lead to constant changes in mortgage rates. Interest values on your mortgage loan will increase if the demand for homes and other real estate properties is high.
On the other hand, decreased demand and supply will reduce interest rates on mortgage loans.
Also referred to as MBS, mortgage-backed securities are simply bonds insured by homes and other landed properties.
Investors who key into this investment vehicle via brokerage services are confident of receiving a decent ROI once borrowers make their monthly mortgage payments. These remunerations, in turn, determine the values of mortgage-backed securities.
Today’s Mortgage Rates: A New Beginning on the Horizon?
Mortgages rates today are at all-time lows. That said, this is good news for prospective homeowners. Thus, people can begin the loan application process and buy landed properties without worrying about high interest rates.
With technological add-ons in the financial arena, you can now compare and contrast your rates against what is obtainable in the general market. However, it’s vital to know that the values available on the market are just benchmarks and shouldn’t be relied on 100 percent.
These days, interest rates might differ due to factors like your credit score, financing, and loan types. Therefore, we advise seeking out the services of different lenders. By doing this, you can see their rates and lock in your mortgage with the option that fields the best interest values.
Finding the Best Mortgage Rates: Three Noteworthy Tips to Consider
Seeking to dispel the “should I lock my mortgage rate today” query in its entirety, let’s see what employable tips you can consider to sieve out the best rates.
Use Existing Financial Relationships to Your Advantage
If you’ve had a savings account at a particular financial institution for a long time, you can take advantage of special rates created for loyal customers.
Although this isn’t the case at most banks, you can conduct due diligence to determine whether or not your bank fields time-specific unique mortgage interest rates for their long-term patrons.
Increase Your Credit Score
To receive a great rate on your mortgage, you’ll need a credit score of 600 to 700. If your current credit score doesn’t match these values, consider making prompt payments and reducing credit usage.
Making a Substantial Down Payment
Making a sizable down payment is sure to reduce your rates. It’s simple — the more money you put down, the lower the risk for lenders. Here, the lending firm makes repayments hassle-free by giving you interest rates that don’t bore a hole in your finances.
With the “topsy turvy” nature of mortgage rate locking, is this the right move for you? If you’re unsure about taking the giant leap, seek insight from your lender. Here, you can get some perspective into their rate lock policies and see if it suits your interests.
Have you got a mortgage with decent interest rates? Then, it might be time to look through the stellar home listings available at Homes by Ardor. If you have any questions, our team of experts will be on hand to give you fitting expert advice via email and phone.