Buying a home is a major decision, and likely one of the most important financial decisions you will make. One of the options available to you in the home buying process is a mortgage rate lock.
If you are not sure what this means, or whether it’s the right choice for you, keep reading to learn more.
What is a Mortgage Rate Lock?
A mortgage rate lock is a process of guaranteeing the mortgage interest rate you will have when you close on your home. Mortgage interest rates vary based on your personal financial health and the economy, so the interest rate listed on your initial pre-approval is subject to change. Interest rates vary based on the health of the economy, meaning they can change from hour to hour. During the underwriting and approval process, the market may change enough to significantly affect the terms of your loan.
Assuming you don’t make major financial changes during the home buying process, like taking on new debt or switching jobs, a rate lock can be a way of guaranteeing the terms you will have when you close on your mortgage.
What are the Benefits of a Mortgage Rate Lock?
A mortgage rate lock provides borrowers with peace of mind and specific information to plan. When you have a mortgage rate lock, you won’t have to wonder if your budget is going to change significantly as the economy fluctuates during your home shopping.
Even a slight increase in interest rate may impact your monthly payment significantly enough to change your overall housing budget. The major benefit of a mortgage rate lock is predictability, which provides peace of mind and a concrete plan.
What are the Drawbacks of Mortgage Rate Lock?
A mortgage rate lock offers borrowers the major benefit of predictability, so what’s the downside? The most common reason someone might not opt for a mortgage rate lock is timing. If you don’t have an offer accepted in the window of time agreed upon in your mortgage rate lock contract, the lock will expire and you may have to pay to lock in a rate again.
Some also choose to forgo a mortgage rate lock because they think interest rates will go down. If you are locked in at a higher interest rate than would be offered to you at closing otherwise, you will be obligated to take the higher interest rate. While this is unlikely, it can happen and is something to consider. Pay attention to expert economists and their predictions about the housing market to inform your decision.
Locking in a rate is associated with fees, which are multiplied by the number of times you need to lock in a rate. Fees will vary significantly, and in many cases will be worth the amount you save. However, this is not guaranteed. Talk with your real estate professionals to determine if your situation makes you a good candidate for a mortgage rate lock.
Where should I begin?
The first step in getting a mortgage rate lock is applying for a mortgage. Set aside some time to talk with a loan officer. An initial conversation may help you get an idea of how much you would be pre-approved to borrow, and what kind of interest rate you can anticipate.
Talk to your loan officer about the potential of a mortgage rate lock to find out if it is an option available to you. The more information you have, the better prepared you can be to make the best financial decisions in the home buying process. Remember: your loan officer is there to help walk you through the process!
For more information about securing a mortgage rate lock, or to begin the pre-approval process, contact me today! I serve the entire Roseville CA mortgage industry with home loans, jumbo loans, bank statement and self-employed loans and more.
