How To Lock In A Mortgage Rate
Your mortgage lender will probably offer a rate lock after your initial loan application has been approved and before its submitted for underwriting, though rate lock policies vary by lender.
If a loan advisor doesnt mention a rate lock, you can simply ask for one. Thats also when youll want to find out about available rate lock periods and whether there is a fee.
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What To Do If Interest Rates Fall After Your Rate Lock
If you locked in your rate early but interest rates are dropping, you might consider withdrawing the current mortgage application and starting a new one. There are some risks to this approach, however. You could:
- Lose money youve already paid on an appraisal and other costs, such as a credit check youll end up paying for them again with a new loan application
- Pay more for processing the new application if the lender or mortgage broker has higher fees
- Wait longer to close on a home, which could complicate your planned purchase of a home if the seller needs the transaction to close on an exact date. This is not as much of a concern when refinancing.
However, if there is a big difference between your possible new rate and the current locked-in rate, it might be worth dropping the loan application and spending a few hundred dollars to obtain a rate that saves you thousands over the life of the loan.
What If Interest Rates Fall
If interest rates fall during the lock period, you usually can’t take advantage of the lower rate unless you:
- have included a “float down” provision in the original lock and advise the lender that you want to take advantage of it, or
- rewrite the rate lock at an additional cost.
When you include a float down option in your rate lock, the lender must give you the locked-in rate if interest rates go up before closing. If rates go down, you have the right to lock again at a lower rate. Rates generally have to be a quarter- to a half-percentage point better than your locked rate to get a float down. Because a float down option increases the lender’s risk, the price of a float down is higher than the price of a lock without a float down.
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Mortgage Lock Rate Techniques
Interest rates fluctuate daily. As you’re searching for houses and comparing loans, you’ll see how those interest rates are doing day-to-day. You may notice patterns, such as dips or hikes that last a little while. Use this information and your defined budget to decide when to lock in your mortgage rate.
Another technique is to lock in the mortgage rate early on. Regardless of what the interest rates do, you’ll know what you’re in for. Should interest rates drop dramatically in the future, you may be able to refinance your home to take advantage of the lower rates.
Another tip, whether you’re a first-time homebuyer or refinancing, is to negotiate mortgage rates with your lender.
Is Waiting Worth It
Rates are extremely lowand experts say waiting around for a lower one is not worth the risk for most borrowers.
According to Alex Elezaj, chief strategy officer at lender United Wholesale Mortgage, his company is currently offering 30-year conventional loans with rates as low as 2.5% and 2.99%and even lower on 15-year loansto borrowers with credit scores down to 640.
With rates that low, waiting for any further drop just doesnt make sense.
If rates are really low, you just take advantage of it and you close on it, Elezaj says. They could go up they could go down. But when you’re talking about rates in the twos, you start splitting hairs at that point.
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What Happens If The Rate Goes Up Or Down After You Lock In The Rate
If interest rates rise during your lock-in period, you will not be impacted you will still pay the lower rate that you locked in. If, however, you lock in a rate but then rates drop, you typically will not be able to take advantage of those lower rates instead, youll pay the higher rate that you locked in. There are some exceptions to this: First, if you have a so-called float down provision which states that if rates drop during the rate lock period, the borrower can take advantage of the lower rates in your written rate lock agreement, you should be able to get a loan with the lower interest rate. . Second, you can rewrite your rate lock so that it reflects the new, lower rate, but this, too, can prove costly.
When Should You Request A Mortgage Rate Lock
Some mortgage lenders allow you to lock in rates as soon as your mortgage has been pre-approved, while others will not offer a mortgage lock until you present a purchase agreement to buy a home.
Unless rates are extraordinarily low, the best time to lock in a rate is after you’ve signed a purchase agreement, not the second your loan application is approved. That’s because you want your lender to have more than enough time to process your loan before the rate lock period expires. Ask your lender how long it normally takes to get your home loan to closing and build in extra days for unforeseen circumstances — that will help you determine how long a rate lock you need.
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A Guide To The Mortgage Rate Lock
Mortgage interest rates can fluctuate rapidly they move up and down from day to day and even from hour to hour. These quick changes can impact the amount you pay when you refinance or close on your mortgage. A mortgage rate lock protects you from costly fluctuations and freezes your interest rate in place.
In this article, we will examine how a mortgage rate lock works, why you should lock your mortgage rate and when is the best time to get one for your loan.
Communicate With Your Lender
First things first, talk with your lender about the decision to hold off. Ask your lender what costs are associated with locking in a mortgage rate. Make sure that youre comfortable with the cost and how your may be affected.
Also, ask how long a lock will last. Rate locks often last 15 60 days, but the exact time frame can vary based on the lender. You should choose a time frame thats long enough to move your loan through the underwriting process.
Finally, ask about the process to lock in your rate when you are ready.
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Should I Lock My Rate Today
If youve compared rates with at least three to five lenders and reviewed all the closing costs on the loan estimate, its best to get a rate lock as soon as possible. The speed at which rates are moving is something we havent seen in awhile, Kan said. If you find the right combination of rate and costs, locking in will protect you from volatility.
In addition, there are different factors to consider if youre buying versus refinancing a home.
Why You Should Lock Your Mortgage Rate
When you lock in your interest rate, youre taking a crucial step toward figuring out for sure how much your mortgage payment will be each month. Until then, your interest rate, and therefore payments, are subject to daily market fluctuations based on how the mortgage market is doing. Learn more about how rates work here.
If market volatility results in interest rates going up then the total cost of your loan and your monthly payments may end up higher than the original quote by your lender.
On the flip side, if market conditions improve significantly and rates go down, your locked rate wont go down. But there may be a silver lining: In some cases and in times of extreme market volatility, you may be able to arrange a one-time float down to secure a lower rate if it becomes available. This feature may come with additional costs, so find out how rate lock and float down options work with your lender.
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When To Lock Your Interest Rate
Lock the rate in as soon as you see the one you want or when you first apply for the mortgage. That way, your rate is locked as you spend time getting the application approved. Locking the rate is particularly important if you barely qualify at today’s rates, and an increase would push buying right out of your reach.
What Things May Affect My Interest Rate
We consider a variety of factors when we determine the interest rate and costs of your loan. The process of reviewing these factors to determine your rate is called “risk-based pricing.”
The typical factors we look at include:
- We’ll obtain a credit report that shows your current debts and payment history. The report will also include a credit score based on your overall credit history.
- Property type: Investment properties, condominiums, manufactured homes, and multifamily homes are generally considered to be higher risks than single family detached homes.
- Loan-to-value ratio: The amount you want to borrow compared to the appraised value of the property. Generally, the lower your LTV ratio, the lower your interest rate and costs.
- Debt-to-income ratio: The amount of your mortgage payments and total debt payments compared to your income. A higher DTI ratio may mean higher interest rates and costs.
- Type of loan: Purchase versus refinance, an adjustable rate versus fixed rate, or cash-out refinance versus rate-and-term refinance, may affect overall risk.
Some other things that may affect your interest rate:
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How Long Can You Lock In A Mortgage Rate
Lock periods can be 30 days, 60 days or longer. Select one that allows plenty of time to closing.
Ellie Mae, a technology provider to the mortgage industry, reports closing times for all mortgages, including government and conventional loans, average about 41 days though closings can take anywhere from 14 to 90 days.
Ask your lender the expected time to closing, and then consider building in a bit of a cushion to your rate lock period.
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Should You Lock Your Refinance Mortgage Rates
If youre shopping for mortgage rates today from the best mortgage lenders like Amerisave, the topic of rate locks is going to come up. Should you, when, how long, and should you pay to lock your refinance mortgage rates are all valid concerns that could save or cost you a lot of money. Here are basic rate lock tips to make sure you dont miss out on todays lowest refinance mortgage rates.
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How Do I Lock The Mortgage Interest Rate
Ask the lender to lock-in. The lender wont do it automatically, even after you complete your loan application.
After you apply, the lender will send you a Loan Estimate. Look on page 1 to see if your loan is locked-in. In this example, the interest rate is not locked.
When youre ready to lock, call your loan officer rather than email. Since rates are in a constant state of flux, Fridays rate could be higher on Monday. If the loan officer misses your email, you could end up with a higher rate and monthly payment.
After you request the lock, the loan officers lender will confirm it by sending you a revised Loan Estimate and a Rate Lock-in Agreement. Review the documents. Contact the loan officer if you disagree.
Check Page 1 of the Loan Estimate. Confirm that the lender locked the interest rate and the date that the lock expires.
Page 2 of the Loan Estimate, in the Loan Costs column on the left, review the lenders Origination Charges. These are the upfront fees that you pay to the lender at closing for the loan you locked-in.
Some lenders charge a Rate Lock Fee or discount points and others have no fees. Either way, you can see how much the lender is charging you in Section A.
Use our free mortgage calculator. It gives you real rates and closing costs so you know how much money you need to buy a home.
At NewCastle, we confirm your lock instantly by email and through the loan dashboard so you never worry about your interest rate.
What If Rates Fall After I Lock My Mortgage Rate
Its not uncommon for rates to drop after you lock. You do have a few options in this case.
First, you can keep your locked rate. It may not be worth trying to renegotiate your lock over a small rate reduction.
However, if rates drop dramatically during that period, you might be able to take advantage of new, lower rates with one of the following strategies.
- Using a float down
- Locking with a different lender
Many lenders allow you to float down, which lowers your rate to match the market rate if interest rates decrease during your rate lock period.
Usually, the lender charges a fee or higher interest rate if you opt for a float down.
Most lenders offer a float down provision because ultimately they want to keep you as a customer more than they want to lock you in at a higher interest rate, notes Zhou.
However, some lenders dont provide a float-down option.
If this is true, you can always abandon that lenders loan application and rate lock and reapply with a different lender offering a lower interest rate, Cohn suggests.
Remember, youre not committed to a lender until the loan closes even if youve locked a rate. You can always walk away before closing day and find a lender offering a better deal. The downside is, youll have to re-apply and go through underwriting all over again, thus extending your time to close.
Alternatively, you could stick with the higher rate you locked in and proceed to closing as planned.
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Sign No : Interest Rates Are Rising
If interest rates are generally trending upward, you should lock in sooner rather than later before rates spiral higher. And currently all signs point up.
After the Fed acted to boost a key interest rate in December, our chief economist, Jonathan Smoke, rates like weve seen for most of the past five years are indeed history.
All in all, be sure to check the latest mortgage rates before you take the plunge.
How Long Should You Lock
The purpose of a rate lock is to allow enough time to close on your refi. Typical rate locks run from 7 to 90 days, longer in some cases. Some lenders will allow you to extend your rate lock if it expires however, some will not meaning youd be losing the refinance mortgage rates you initially locked.
You have several choices when it comes to when to lock your refinance rates. You can lock when submitting your application for mortgage refinancing, known as a pre-lock. This ensures your refinance mortgage rates are locked before your home loan is underwritten. Some homeowners choose to float their mortgage rates and lock at the last minute, gambling that rates wont go up while their application is being processed.
Its up to you to choose when to lock in your mortgage rates however, once you do if you dont get the rate lock in writing it never happened. Dont assume the lender or broker will lock your interest rate.
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If Interest Rates Go Down
If interest rates go down after you lock in, thats obviously not ideal because youre bound to the rate your lender locked for you. However, if you want to take advantage of lower rates after you lock, you can ask your lender if it offers a float down option. This allows you to score a lower rate if they drop before closing.
How To Calculate The Blended Interest Rate
This method of calculating a blended interest rate is simplified for illustration purposes. It does not include prepayment penalties. Your lender can combine the prepayment penalty with the new interest rate or ask you to pay it when you renegotiate your mortgage.
Example : Calculate the blended interest rate
Suppose interest rates have gone down since you signed your mortgage contract. To take advantage of these lower rates, you’re considering terminating your mortgage and renegotiating a new mortgage with your current lender.
Suppose you have:
- months until end of the term: 24
- current interest rate for a 5-year term offered by the current lender: 4.0%
- current term: 5 years or 60 months
- payment frequency: monthly
|Steps to calculate a blended interest rate||Example||Enter your information|
|Step 1: multiply your current interest rate by the number of months remaining on your current term||5.5% x 24 months = 132|
|Step 2: subtract the number of months of the new term from the number of months remaining on your current term||60 months 24 months = 36 months|
|Step 3: multiply todays interest rate by the difference between the number of months of the new term and the number of months remaining on your current term||4% x 36 months = 144|
|Step 4: add the results of Step 1 and Step 3||132 + 144 = 276|
|Step 5: divide the results of Step 4 by the number of months in the new term||276 / 60 = 4.6|
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