Should You Lock In Your Mortgage Rate Today?

Home sales have been at an all-time high in the last few years. The current housing market is in an enormous boom, and analysts are still wondering what comes next. While some information trends towards a slow-down (with buyers beginning to leave bidding wars), there is still plenty on the table with up-buying in action across the country. If you’re considering making a purchase, there’s no better time to clarify some terms related to the home buying process. Perhaps someone has suggested that you lock in your interest rate early, but you’re unclear about whether you should lock in a mortgage rate today. Here’s some information that can help you decide:

What Is A Rate Lock?

A rate lock on a mortgage (sometimes referred to as a lock-in) means your interest rate will be stable between the time of the offer and closing. The time between those two has to be clearly specified, and there must not be any changes to your loan application. If there are changes to your loan application or the time frame extends, the lock is “broken,” and terms must then be renegotiated. If this happens, it can be both time-consuming and costly.

What Impacts the Rates?

Many professionals make a career out of analyzing and timing the best interest rates, and it can be tricky even for the experts. This is why locking in an interest rate you find acceptable is an important step in an affordable home buying experience. If the rate lock is successful, you’re guaranteed the rate that you signed up for without worrying about the volatility of changing rates. Interest rates can change drastically due to many different factors:

• Supply and demand for money/credit
• Inflation
• Government borrowing
• Government monetary policies
• Variances in loan types
• A borrower’s credit score
• A borrower’s DTI (debt-to-income ratio)

Cautions

There are two primary downsides to locking in an interest rate:

• If rates decrease exponentially, you will be unable to take advantage of the lower rates without renegotiating your terms.
• While locking in a mortgage rate can save your rate from shifting with an unstable market, it can also be costly. That’s because you may need to make changes or adjustments to your application.

To avoid any hidden fees or additional expenses, work through the fine print with your lender. You’ll want to identify any terms that could come back to haunt you. After all, the reason why you locked in the rate to begin with was to save yourself money, not to spend extra because of errors in paperwork. Some reasons why your application might require adjustment, causing your rate to “unlock” and terms to be renegotiated, might be changes to:

• Type of loan
• Amount of loan
• Appraisal value
• Credit score
• Documentation verification
• Approval period

Ask The Experts

To find out more about how to negotiate the best terms for your mortgage and lock in your rate, contact UW Funding today.