As mortgage rates have fallen over the past several months, many homeowners are looking at that familiar decision of whether or not to refinance mortgages while rates are low. Headlines in the early part of 2009 announced rates on a 30 year fixed mortgage below 5%, prompting many borrowers to take a closer look. Rates have crept back up since then and are now above 5%, although still at historic lows for a fixed rate mortgage.

Borrowers trying to decide whether or not to refinance are sometimes forced to play an intense waiting game, hoping the terms of their new loan are approved before interest rates move up, increasing their monthly payment. One option that is available to borrowers from many lenders is the ability to lock rates in place when an attractive rate is offered. In a world where interest rates change seemingly every hour, this could be an attractive option that provides a little less worry as you complete the refinancing process.

There is typically a cost to lock in rates, usually around 1/8 of a point. This will add a little to your monthly payment, but it removes the risk of having to pay an even higher rate if rates move up before you’re able to complete the loan. Some good rates last for a very short period of time, so if you’re able to get the rate in writing and lock it in, it can be very beneficial.

The downside to a rate lock is that if rates get more attractive for borrowers, it can be difficult to apply the lower rate to your loan unless the move in rates is substantial. However, if you only lock in a rate that you’re satisfied with, the peace of mind is usually well worth the risk that you might be able to get a lower rate in the future.

How much does a change in interest rates can affect monthly payments? A borrower with a $200,000 loan can save $70 per month if rates move down by half a percent. It doesn’t sound like a huge amount, but that difference is over $800 a year, and over $8000 over a ten year period.

It’s hard to say where mortgage rates will go, but if you’re in a position to save money by refinancing, the ability to lock in an attractive rate can make or break an opportunity to save money on your mortgage payment.

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Tags: lock in interest rates, lower mortgage payments, mortgage rates, refinance mortgages

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