When you buy a home (or refinance), you want to get the best interest rate that you can. How do you know when to lock or if you are locked? Once you write a purchase agreement on your new home, you have to decide when you want to lock your interest rate. There are a few things that can cause your interest rate to vary. Some of it depends on how long a lock you need and what your credit score is.
Once you know your closing date, you can lock in your rate. The longer the lock, the more expensive the rate may be. The reason for that is simple, the further out the lock, the more risky for the bank. Investors have a better clue what will happen with rates in the next few days than a couple months out. If you are close to a 30 day lock and rates are stable, you may want to wait - but it's a gamble at the same time! I will tell clients that if you are willing to play the game and risk a higher rate, you can float until you decide you want to lock in the interest rate. Sometimes people get a better rate, sometimes they don't. If everything stays the same, a 30 day lock is cheaper than a 45 day lock and a 45 day lock is cheaper than a 60 day lock. The risk is that the market will get worse before you get to the 45 or 30 day window!
Once you lock you are locked. The simple way to understand it is until you lock, you are floating and you are the one taking the risk. After you lock, you don't have to worry about the interest rate, the bank is now the one at risk, but at the same time, if rates improve, you can't lower your interest rate. Sometimes depending on the situation and how much interest rates haave improved, you may have an option to renegotiate your interest rate. This is typically only if rates have improved quite a bit and it's a one time option shortly before closing.
When you decide to lock in your interest rate, your loan officer will make sure you understand the interest rate and the costs (if you are paying points or not to get that rate). You should sign a lock letter. That protects you and the loan officer and shows what your interest rate is, what the cost is and how long the lock is good for. The lock letter protects you (and the lender) and shows that you are locked in to that interest rate.
Loan officers don't have as many options to reduce fees like they used to due to new federal regulations. Because of this you may have less chance of lowering your costs such as an origination fee or any other lender costs.
When clients ask me about locking in their rate and if they should, I can tell them what rates are today and where they have been. I can tell them as much as I know about what is happening in the market, but no one really knows what will happen to interest rates. There are so many things that can affect the market and change the direction of interest rates, that there isn't a way to "guarantee" what the market will do. The most important thing to consider is if you are comfortable with the current rate and what your risk factor is. If you can't afford for the rate to go any higher, you may want to lock so you know you are locked in to that rate. If you feel you can take the risk and hope for a lower rate, you can float your interest rate and hope the rate drops! Just make sure you stay in contact with your loan officer so you know what is happening with interest rates!!
Leslie Vanderwerf, NMLS ID#335509, Advisors Mortgage - Email - Website
