When Is The Ideal Time To Lock In A Mortgage Interest Rate
Every homebuyer is looking for the ideal price and lowest possible mortgage payment that they can possibly get. Investing in a house is a big commitment, and that’s why it’s important to find a trusted real estate agent and to shop around the market to get the best value out of your hard-earned money.
An extra precaution many of us take is getting our credit score to qualify for a more desired interest rate. Much like a sale price, the interest plays just as big of a role in the cost of your newly discovered house.
An interest rate is a fee that you pay your bank, and the higher it is the more you end up paying of the lifespan of a loan, no matter what it might be for. Buyers prefer the cheapest rate, and acquiring the best loan rate, and some buyers make a choice to lock in their interest rate to secure a specific price financially. And if you play the interest game smart, you can end up saving yourself a ton of money!
Locking in the interest rate isn’t a requirement when purchasing a home, but we do recommend it if you want to risk having it increase before you close on your new home. Mortgage rates can and will change, possible on a daily basis. Think Murphy’s Law, anything that can go wrong, will go wrong. If you choose to lock in your interest rate, your mortgage lender is required by law to honor the agreed-upon rate, whether the interest rates change before your scheduled closing date.
For example, a mortgage lender may quote you at a rate of 3.75 percent on this very date, but the interest rates may rise to 3.96 by the time you decide to close on your house. Be weary, rates may change tomorrow! Even though the increase may not seem very significant, it’s enough to slightly rise how much you will pay over the course of your entire mortgage payment. Make a wise decision…
Take the initiative and lock in your rate; in the future it will protect you from any mortgage increases in the near or far future. It’s also important to understand that interest rates have the opportunity to decrease before you close on your house and you more than likely won’t be able to take advantage of those lower rates. Making a decision on when to lock in your interest rate is like gambling, you don’t know what the outcome is going to be, but you either can win or lose and hopefully you win in the long run.
One more thing to consider before locking in, your interest rate is note free, and it has a possibility to cost as much as one point/percent of your mortgage loan, paid at closing. You have the option to lock in your rate for 30 days, 45 days or 60 days. Pick which one fits your circumstances.
When Should I Lock In My Interest Rate?
You have the choice of locking in your interest rate anytime after you have become pre-approved for a mortgage. Although, there is no way to guarantee how long your house hunting process will take and how long closing on a loan will span. The ideal solution is to wait until after you have signed your purchase agreement, that way you don’t waste a large majority of your lock period still looking for your dream home.
Avoid making the mistake of locking in your rate way too early. If it takes you longer than expected find a new home, your lock period can expire and you will miss the chance to take advantage of a low interest rate. Take a minute to work one-on-one with your trusted mortgage lender and determine together what the best time is to lock-in your interest rate. Since you could end up paying more for a longer lock period, you’ll want to make sure that you have the shortest period you can get.
After you have received a signed purchase agreement, it’s difficult to know when you will close on the mortgage loan. Everything relies on your mortgage lender and your bank’s current activity and how busy they might be. If the bank has time, you might be able to close on your home within a 2-4 week period, and this means you might only have to pay for a 30-day lock period. If the bank has a line of closings ahead of yours, the process might be longer.
What About Considering a Rate Lock?
A rate lock is a very convenient thing to have, but it isn’t necessary for every borrower. Mortgage rates are very influential over purchasing power, and for some select people, a low interest rate is the only way to qualify for a specified mortgage amount. So sometimes even the slightest rate increase can put the mortgage process in jeopardy. If you happen to be in this situation, a rate lock could be the only way to guarantee keeping your home within an affordable range. Although, if mortgage rates seem to be steady and have been for a while, and if a rate increase won’t impact your affordability, you can decide against a rate lock to avoid the fee.
Buying a home is a long-term commitment, and it’s crucial that you’re able to afford your mortgage payment for the upcoming years. Getting the right sale price and a favorable interest rate is exactly what you should be aiming for. And a rate lock is always an option if you need a guaranteed affordable rate.