Home > Mortgage Loans > Mortgage Rates Should I lock the interest rate on my loan?
Mortgage Rates Should I lock the interest rate on my loan? |
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In the past, mortgage rates were more or less constant with only minor variations from time to time. Depending upon one's relation with bank, one could even avoid any minor increase in the mortgage rate. However, with banks becoming multinational and local bank managers reporting to CFOs far away in other cities, it has become difficult for the local mortgage loan officer to offer concessions in the mortgage rate. He can, however, offer safeguards such as rate locks or lock-ins. As soon as a favorable mortgage rate is announced in the market, the loan officer can secure the rate for you. The lock-in may include both the mortgage rate and the points (one point equals 1% of mortgage amount charged by the lender) or just the interest rate--with the points allowed to rise and fall (float). The mortgage rate and the points have to be locked before settlement or the closing, although they may be allowed to float until sometime after the application has been completed. It is always prudent to get the lock-in agreement in writing. All documents such as pay stubs, W2 forms or other proof of employment and salary, bank account numbers, your latest bank statement, and your bank branch address, loan and credit card account numbers, the names and addresses of your creditors, and evidence such as canceled checks of your mortgage or rental payments must be provided to the lender within a week to lock in a mortgage loan. The validity of the locks may vary from 10-120 days with small increments in the mortgage rates from the shortest to the longest period. When the mortgage loan has already been approved, the lock period would be the smallest, usually 10 days. When your loan has been taken up for processing and the mortgage loan officer has all the information, the lock may be for 30-45 days. If there are external factors which may delay the mortgage loan closing, the lock period could be longer than 30-45 days. This could be due to the need to sell an existing home before the new loan can facilitate purchase of another house, or due to the delay in construction of the new house. Since greater cost in rates and points is involved in long lock periods, it is essential to keep track of the mortgage rates in the market. If the market is going down, it is better not to go in for a lock-in. You have to decide for yourself if mortgage rates are changing fast enough to warrant a lock-in mortgage rate or not as also the lock-in period. Locks longer than 30 or 45 days are usually used when there are external factors that may delay the mortgage loan closing. These may involve the need to sell an existing home before the new loan can close on the purchase of another home. On the other hand, they may include a delay in the completion of a new home that is under construction. Since long locks begin to involve greater costs in rates or points, the longer the lock that is contemplated, one should take a hard look at the market, at whether mortgage rates are remaining rather steady or are going up or down. If the market is declining, you may decide not to ask for a lock-in. Everyone needs to play their own game, make their own decisions. You need to decide if mortgage rates are changing fast enough to warrant a lock-in mortgage rate or not. If they are, then decide for how long a period you need to lock a rate. Hopefully, with well-considered decisions, your results will be rewarding!!! |
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