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Can you Get a Truly No-Cost Refinance?

January 31, 2019 By JMcHood

You may hear lenders advertise or suggest a no-cost refinance. You probably wonder how that could be possible. What lender would offer a refinance without charging anything? Closing costs can be in the thousands of dollars, so what’s the catch?

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The truth is that there is a catch. You won’t get the loan for ‘free.’ You’ll just pay it in other ways.

What the No-Cost Refinance Means

When a lender offers a no-cost refinance, it means that they will refinance your loan without charging you any closing costs upfront. It doesn’t mean that they won’t charge you for them, though. Typically, they get the payment from the higher interest rate that they charge you.

Let’s say that a lender offers you two options:

  • Option A is for a $200,000 loan at 4.5% with $3,000 in closing costs
  • Option B is for a $200,000 loan at 5% with no closing costs

Do you see the difference? You pay a higher interest rate so that you don’t have to come up with any money at the closing. The lender eats the costs of processing the loan while collecting more interest on your loan than they would have if they charged the closing costs upfront.

What’s in it for the Lender?

You probably wonder why a lender would even consider this option. Don’t they need the money upfront? While they do, they actually make out on the deal if you end up keeping your loan for the entire term. When you pay a higher interest rate, you pay it for the life of the loan.

Let’s say that Option B was for a 30-year term. You would pay $61 more per month with the higher interest rate. That’ doesn’t seem like a lot, but let’s look at it over the life of the loan. $61 per month is $732 per year and $21,960 over the life of the loan.

That means the lender comes out ahead $18,960 by giving you the higher interest rate rather than collecting the closing fees from you.

Now that’s only if you keep the loan for the entire term. That’s the lender’s hope and why they would give you the no-cost refinance.

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Do you Benefit?

You may benefit from the no-cost loan in a couple of ways. First, if you truly don’t have the money to pay for the closing costs now, you may have no choice. If the refinance is vital for you, because it will save you money on your loan each month, it may make sense to do so.

You may also benefit from the no-cost loan if you know you will move in the near future. Let’s say that you know you’ll move in three years, but you want to refinance because you have a high payment right now. If taking the slightly higher interest rate of the no-cost loan still benefits you, take it. This way you save money on your monthly payment and you get away with paying the closing costs.

In our above example, as long as you move before you have the refinanced loan for 4 years, you make out on the deal. Obviously, the earlier that you move and pay off the loan, the more you come out ahead, but the point is that you didn’t have to pay the closing costs on a loan that you knew you would not have for long.

Basically, you need to know where you break-even. When will the extra interest you pay for the no-closing cost loan cover the closing costs? If you will be in the home much longer than that break-even point, paying the closing costs yourself makes more sense. Otherwise, you’ll end up paying excessive interest and not benefiting from the deal. Ask your lender for quotes for both options and then see which way you come out ahead in order to make your decision.

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When is the Best Time to Lock Your Interest Rate?

January 17, 2019 By JMcHood

You think you did all of the hard work – you’ve found a home and you’ve even secured financing. But you still have one more big decision to make  – when should you lock the interest rate? This isn’t a decision that you should take lightly. There are many factors that go into it.

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Understanding a Locked Interest Rate

When you lock your interest rate, that’s your rate for your loan; it doesn’t matter what happens to rates moving forward. Even if you haven’t closed on your loan yet, you are still stuck with the rate you locked. There are a few exceptions to this rule though:

  • If the rate lock expires, you could be subjected to the current market rates if they are worse than the rate that you locked.
  • You may ask for a float down if rates get better. Certain lenders offer the opportunity for you to choose the lower rate for a fee once you lock your interest rate, but not all lenders offer this.

Typically, you’ll have the locked rate for 10 – 60 days, but some lenders offer longer lock periods. Typically, the longer you lock an interest rate, the more it costs you either in fees or with a higher interest rate.

Choosing the Right Time

Now it’s time to choose the right time to lock your interest rate. Is it right after you sign a contract? Is it right before you close? When should you lock it?

  • You must have a purchase contract – Almost all lenders require that you have a signed and executed purchase contract before you can lock your interest rate. If you lock a rate before then and you don’t end up getting the home, your lock will likely expire.
  • Watch the rates – Once you have a contract, you want to watch the rates. You should have a rate in mind that will make you feel comfortable. If rates hit that point, you probably want to lock it unless you are a long time out from closing. You can’t predict what rates will do the next day, so giving up that chance could be quite the gamble.
  • Watch your closing date – Some contracts have a closing date that is somewhat far away. If that’s the case, don’t lock your rate in too early. You have a long time ahead of you for rates to change. Plus, the longer your lock period is, the more the rate will cost you because it costs lenders for you to lock in a rate for much more than 30 days.
  • You must lock before you close – No matter how nervous you are or how reluctant you are to lock yourself into an interest rate, you have to lock it before you can close. Your lender cannot process your loan and create the closing documents until you choose a rate and lock it in for your loan.

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What if a Lock Expires?

Everyone worries about this scenario. What happens if a lock expires on you? You’ll have a few options:

  • Extend the lock – Some lenders allow you to pay a small fee to extend the lock. You should usually do this before the rate lock expires, though. Choosing to do it when you are near the date of the extension, but not past it is the best choice; you should ask your lender what the cost is, though, as it can vary by lender.
  • Take the current rate – Some lenders force you to take the current rate if they are higher than what you locked. You’ll have to decide at that point what you want to do. If the rates are really bad, you may want to find another lender, but that is only possible if you have time before the closing to do so.

The best thing you can do is stay in contact with your lender. They have the best idea of what will happen to interest rates. While they can’t predict what will happen, they have been around and seen what they do historically. Once you lock a rate, stay in closer contact with your lender. Ask about the status of your loan and your options if you get close to the expiration date and are worried about losing your rate.

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Why You Should Understand the Index and Margin on the ARM Loans

December 27, 2018 By JMcHood

You hear that you can get a lower interest rate if you take an adjustable rate mortgage (ARM) so you jump on the chance. But do you know how the ARM loan works? Are you aware of how the index and margin affect your future payments?

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Keep reading to learn about these important terms so that you can fully understand how the ARM loan works.

The ARM Index

Each lender has their own requirements regarding which index they use for an ARM. The most common choices include:

  • Prime rate
  • Libor
  • 1-Year T-Bill

Of course, each lender can use any index they choose. You should know the chosen index so that you can look at its historical patterns. While you can’t predict what the index will do moving forward, you can see its increases and decreases throughout the past few years to give yourself a decent idea of what to expect.

The index is the base of your ARM rate. The lender then adds the pre-determined margin to the current index rate at the time of your adjustment.

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The Margin

The margin is the one factor in the ARM rate that doesn’t change. The margin your lender assigns to your loan is the margin for the life of the loan. Lenders often base your margin on your level of risk. If you are risky, you can expect a higher margin than if you were a low risk of default.

Let’s say a lender assigns a 2% margin to your loan. This means that you’d add 2% to the current index rate at the time that your rate adjusts.

How an ARM Loan Works

Now that you understand the index and margin, let’s look at how the ARM loan works. At first, you’ll get the low interest rate that the lender quotes you. Let’s say you can get a 4% interest rate if you take an ARM loan versus a 4.5% rate on a fixed rate loan.

You will notice that the ARM has a number, such as 3/1 or 5/1. The first number signifies the number of years you can enjoy the low introductory rate. In these examples, you’d have a fixed rate for 3 or 5 years. The next number is the frequency at which the rate changes after the first anniversary date change.

Let’s say you have a 3/1 ARM. After three years, the rate will adjust one time per year according to the chosen index plus your predetermined margin. You won’t be able to predict your interest rate by any means, but you can keep an eye on your index to see what it’s doing. If you don’t want to deal with a changing interest rate, you can always refinance out of the ARM before your first rate change. There’s no penalty for doing so.

The index and margin on your ARM loan play an important role in your loan. You should know these numbers and see how they may affect your interest rate. It’s a good idea to ask any potential lender what the worst-case scenario is for your ARM rate. Each loan has caps or maximum amounts the rate can change so a lender can tell you the highest your payment could ever be should the index get to that point. This way you can plan accordingly.

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Are Jumbo Mortgage Rates Higher?

April 12, 2018 By JMcHood

As the housing market continues to improve, house prices continue to climb. This leaves many borrowers with the need to take out a jumbo loan. Before this sends you shuddering in fear, you should know that jumbo mortgage rates are not nearly as high as they used to be. In fact, in many cases you’ll find little to no difference between the rates of a jumbo loan and a conforming loan.

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What is a Jumbo Mortgage?

First, let’s look at what defines a jumbo mortgage.

Any loan that is more than the conforming amount is a jumbo. In 2018, this means any loan that is higher than $453,100 as that is the national conforming limit this year. This goes for both Fannie Mae and Freddie Mac loans.

However, if you live in a high-cost area, your maximum conforming limit may be somewhat higher. In general, Fannie Mae and Freddie Mac set a ‘ceiling’ that is 150% higher than the national conforming limit for these areas. This means in high-cost areas, you can secure a conforming, non-jumbo loan for up to $679,650. If you must borrow more than that in high cost areas, you will need a jumbo loan.

The Worry About Jumbo Mortgage Rates

Before the housing crisis, it was true that jumbo mortgage rates were higher than conforming rates. In fact, it was not abnormal to pay more than twice the rate of a conforming loan. This was due to riskiness these loans caused. Once the housing crisis happened, jumbo loans became almost obsolete. If you were lucky enough to find a willing lender, you would pay much higher interest rates as a result.

Today, there is a much larger market for jumbo loans. In fact, there’s even a demand in the investor’s market. This means there’s a greater supply of jumbo loans and less stringent guidelines for them. Borrowers don’t have to jump through hoop after hoop just to get a slightly higher mortgage than the conforming limits allow.

How to Qualify for a Jumbo Loan

So now that you know you can secure a jumbo loan without paying inflated interest rates, it’s time to learn how to qualify for one.

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You still might run into stricter underwriting guidelines only because the lender takes a greater risk providing you with this type of loan. Basically, you need good credit, a low debt ratio, and stable income. It’s not anything unusual or nothing that lenders would require should you get a standard conforming loan.

In general, you’ll need:

  • A higher down payment, usually 10% – 20%
  • Credit score of 700 or higher, although some lenders will allow scores as low as 660
  • Debt ratios that do not exceed 43% on the back-end, but some lenders require lower ratios
  • Assets on hand to be counted as reserves (separate from your down payment funds)

Finding a Jumbo Loan

The good news is that it’s much easier to find a jumbo loan today. Right after the housing crisis, it might have been a bit more difficult. Lenders were very leery about giving out any risky loans. Today, many lenders offer them which means you can compare your options and choose the most affordable one.

Don’t focus only on the interest rate and/or costs. Look at the big picture. What will the loan cost you when it’s all said and done? Look at the APR; this will give you a good indication of which loan is more affordable. Sometimes, you might find that it’s the loan with the higher interest rate, yet lower closing costs.

Finding a jumbo loan isn’t going to be hard today. In fact, it’s not even hard to find low jumbo mortgage rates. You just have to do your homework and weigh the pros and cons of each loan. When it’s all said and done, you should walk away with an affordable jumbo loan that helps you buy the home of your dreams.

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The Good and Bad of Rising Mortgage Rates

February 22, 2018 By JMcHood

The Good and Bad of Rising Mortgage Rates

Mortgage rates are the most talked about factor in the mortgage industry. When they rise, people tend to panic. When they fall, everyone rushes to take out a mortgage. So how can rising interest rates ever be a good thing? There are reasons that we will discuss below. Of course, as with all good, there are bad sides too and they might not be as obvious as you once thought. Let’s take a look.

Why Rates Change

First, let’s look at why interest rates change. If the Fed never stepped in and regulated things, the housing industry would be in constant turmoil. Think of it like a supply and demand type thing. When things are good in the economy, rates tend to increase. This is to keep things on an even keel. If rates stayed too low for too long and the economy was doing well, people would keep buying until there was no more supply. This would drive prices up and inflation would be out of control. On the other hand, when unemployment is high, interest rates tend to drop to give people more buying power. It is a checks and balances type of system.

Reasons Rising Interest Rates are Good

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So why would rising interest rates be good? First, it is a sign the economy is doing well. This is something we all want to hear. That means unemployment rates are down and buying is up. This is much better than a sluggish economy where everything needs a little boost in order to thrive. While you might not think a higher interest rate on your mortgage is a good thing, you will think it is good when you look at your other investments. It is a little give and take. Yes, you have to pay slightly more on your loans, but you make it up on your investments.

Another reason higher interest rates can be good is it gives you less competition. If you are in the market to purchase a new home and the economy is thriving, you may have a lot of competition. You may even find yourself in a bidding war. This means you may have to bid more for  the home than you wanted to or you may lose the bid altogether. With higher interest rates, though, there is usually a smaller pool of potential buyers. This allows you to give the bid you want and possibly have a better chance at winning the bid on the home.

Reasons Rising Interest Rates are Bad

Now for the bad. Of course no one likes rising interest rates. First and foremost, it means a higher mortgage payment. This means two things.

  • You pay more interest over the life of the loan. Even 0.5% can add thousands of dollars on the total cost of your loan.
  • A higher mortgage payment means a higher debt ratio, which may mean a loan denial.

Every lender looks at your debt ratio in order to qualify you for a loan. That debt ratio includes all of your monthly payments, including the new mortgage payment. The new mortgage payment is based on the interest rate. If interest rates rise, you have a higher payment. This payment then takes up a larger portion of your monthly income. This means you have a higher debt ratio. If you were a borderline borrower with a debt ratio close to what the program allows, you might find yourself without an approval because of the higher rates.

Even if your debt ratio is okay, you might not be comfortable with the higher rate. It happens all of the time – lenders approve borrowers for more than they can afford. Even if on paper it shows that a borrower can afford a specific payment, he/she may not be comfortable with that payment. We never recommend that you take a payment you are not comfortable paying. This only puts you at risk down the road. If you find it too hard to keep up with the payments, you could end up losing your home. Rather than taking a risk, you should proceed with caution.

Impending Higher Rates Make People Buy

Have you ever heard the threat of rising interest rates and found yourself reacting? You are not alone. Everyone has the tendency to do this. When people hear that interest rates may rise soon, they rush out and buy or refinance now. This can give the economy the boost it needs. This is not to say you should be the one to run out and refinance or purchase a home, but you could give it careful thought. No one can predict for sure what will happen to the interest rates in the future, but if there is a suspicion of rising rates, it is best to do what your gut tells you.

There are good and bad sides to rising interest rates. Because it is an inevitable part of the mortgage process, you have to learn to handle it. Take a close look at your financial situation and figure out what you can afford. Do not just take a mortgage because you love a home and want it no matter what. A mortgage is yours for the next 15 to 30 years. Make your decision wisely. If rates rise and you are not sure about the new payment, wait until they fall again. They rise and fall all of the time. It is not worth making a hasty decision and regretting it down the road. This is one of the largest investments of your life, take your time and make the decision that is right for you.

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How Can you ‘Buy’ a Lower Interest Rate?

February 6, 2018 By JMcHood

The mortgage interest rate is often the most discussed factor on a mortgage. Everyone wants the lowest rate available. What happens if the rate a lender quotes you isn’t low enough for your liking? Are you stuck with it?

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Luckily, you can ‘buy’ a lower rate. You literally pay the lender for a lower rate. Just how does it work? We’ll show you below.

What is a Rate Quote?

When you apply for a mortgage and get a pre-approval, the lender will quote you a rate. Along with the rate, they will provide you with a list of many fees. Before you get overwhelmed looking at the sheet, understand that these fees are standard. They help the lender process and close your loan. However, every lender charges different fees.

As you compare fees from several lenders, you’ll want to look at several things:

  • The interest rate quoted
  • The fees charged
  • The annual percentage rate (APR)

The APR gives you an idea of what the loan will cost you over its entirety. It will be slightly higher than the mortgage rate quoted. As a general rule, if the APR is about 1/8th higher than the rate, your closing costs are standard. If the APR is more than an 1/8th higher than the rate, you are paying higher than average fees.

One reason for higher than average fees is a buy down fee in order to secure a lower interest rate. Another word lenders often use is discount points. You pay points to discount your rate.

How to Buy a Lower Rate

Once you have the quotes from several lenders you can inquire about what it would cost to buy a lower rate. In other words, how many points would you have to pay to get the lower rate? Generally, lenders charge 1 point for every 0.25 drop in the interest rate. Of course, this varies by lender. You’ll only know what lenders will offer by asking them.

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The point is 1% of the loan amount. If the lender charges you 2 points, you’d pay 2 points. For example, if your loan amount is $200,000, 1 point would cost $2,000 and 2 points would cost $4,000. You pay these fees at the closing. Luckily, you may be able to write the fees off on your taxes, though.

Should You Buy A Lower Interest rate?

The real question is whether or not you should buy a lower interest rate. It comes down to more than whether or not you have the money. It’s whether it makes sense.

In order to determine this, you’ll need to know your break-even point. This is the point that paying the fee for a lower rate pays off.

In order to determine it, figure out how much the lower interest rate saves you each month. Let’s say it saves you $50 per month. Next, figure out how much the discount will cost. Let’s say it costs $2,000. You’d then do the following calculation:

$2,000/$50 = 40 months

It would take a little over 3 years to start reaping the savings of the lower interest rate. Now, the question is, will you be in the home that long? If you don’t see yourself staying in the home for at least 4 years, paying for a lower rate won’t make sense. Paying the higher interest rate for the short time you are in the home will make the most sense.

If you plan to stay in the home for the long term, you’d start reaping the savings at the 3 year and 4 month mark.

Should You Shop Around?

Just because a lender gives you the option to buy a lower interest rate, doesn’t mean they are the right lender for you. There may be another lender that will give you that lower rate without paying any points. This could save you thousands of dollars, so it’s worth shopping around.

When you shop around and receive quotes from lenders, don’t be afraid to tell another lender the quote you received. Sometimes they will try to beat the quote, giving you even more savings on your loan.

If you decide to buy the interest rate down, make sure you know the break-even point. Just making sure it makes financial sense to pay extra for 1/8th of a point lower rate can help you make the right decision. 1 point can be a lot of money depending on your loan size. Make your decision carefully before paying for a lower rate.

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Sneaky Ways to Keep a Low Interest Rate When Rates Increase

September 11, 2017 By JMcHood

Shocked man

It’s getting harder to find a low interest rate today. That’s not to say rates are increasing astronomically. But, they are steadily getting higher. That low mortgage rate you could once get is not as easy today.

Make Sure You Have Good Credit

Lenders look at your credit first, plain and simple. It doesn’t matter which lender you go to, they look at your credit. Making yours as strong as possible can help you secure a lower rate. The higher your credit score, the less risk you pose. This may mean a lower interest rate.

Start fixing your credit long before you apply for a mortgage. Even if you haven’t pulled your credit, make sure you pay your bills on time. This practice alone can have a huge impact on your score. You should also try minimizing your total debt load.

Perhaps, most important is the need to check your credit report for errors. You won’t know if something erroneous is reporting unless you pull your credit. Each bureau allows you 1 free credit report per year. Take advantage of it and fix any errors you see.

The more steps you take to improve your credit score, the lower the interest rate many lenders will offer.

Keep Your Debt Ratio Down

Another large factor in your interest rate is the debt ratio. The more debt you have outstanding, the riskier you are to a lender. Take a minute to figure out your debt ratio.

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Total up your monthly obligations that report on your credit report. Things like car payments, credit cards, and student loan payments must be included. Then include the potential mortgage payment. If your total debt ratio exceeds 43%, you may not be eligible for a low interest rate. You may also have trouble finding a lender that will approve your loan.

In order to lower your debt ratio, you may need to pay debts off completely. In some cases, though, you may be able to pay them down. Credit cards are a good example. If you pay the balance down, your minimum payment decreases. This helps decrease your debt ratio. If your ratio is near the maximum, this could help tremendously.

Take Out an Adjustable Rate Mortgage

Sometimes even though you have great credit and a low debt ratio, you still get a high rate. It’s just the way the market goes. Taking out an ARM or adjustable rate mortgage can help, though. This method isn’t for everyone, so proceed with caution.

An ARM offers a low “teaser” rate. The term you choose determines how long you keep that low rate. It may vary from 3-10 years. After that time, the rate adjusts. You can’t predict how much it will change, though. This is why it’s not for everyone.

Borrowers who are in the home temporarily often do well with an ARM. If you can take one out that doesn’t adjust before you move, you luck out. Even if it does adjust while you are there, you have the option to refinance. It’s a gamble, but it could be worth it if you save enough money during the teaser rate years.

Pay for a Low Interest Rate

Some lenders allow you to “buy” your rate down. Essentially, you prepay interest. You just do it in percentage points. One point equals 1 percent of your loan amount. On a $100,000 loan, one point equals $1,000.

If you decide to pay discount points, the lender will lower your interest rate. Generally, one point lowers rates ½ of a point. Each lender decides just how much you’ll save, though. The more volatile the market, the more a discounted rate will cost you in most cases.

Make a Larger Down Payment

A larger down payment helps minimize the risk for the lender. It gives you what they call “skin in the game.” The more of your own money that you have invested in the home, the more likely you are to make your payments.

A borrower who puts down the minimum 5% on a conventional loan will likely get a higher rate than someone who puts down 20%, for example. Of course, this varies by lender and loan program. The larger the down payment, the more negotiating power you have with your lender. It also gives you leverage if you shop around.

Take a Shorter Term for a Low Interest Rate

Again, lenders like loans that aren’t risky. The longer you borrow money, the riskier you become. While lenders provide 30-year terms, they don’t prefer it. If you borrow money for 15 years versus 30 years, that’s double the amount of time. Granted, lenders make more interest, but their money is still at risk for another 15 years.

If you can swing it, opt for a shorter term. It doesn’t have to be as drastic as a 15-year term. You can try a 20 or even 25-year term. Any amount of time you can knock off the term helps your case, though. The shorter the term, the more likely you are to secure a low mortgage rate.

Compare Quotes From Different Lenders

This last tip is our favorite – shop around! Don’t take one lender’s word for it regarding what you qualify to receive. There are many fish in the sea, so to speak. Get out there and see what other lenders have to offer. We recommend shopping with at least 3 lenders.

Once you receive the offers, compare the Loan Estimate from each lender. This gives you a chance to see what they have to offer. Compare not only the interest rate, but also the fees. Look specifically for discount or origination points. Also, look at the APR to see what the loan will cost you over its entire life.

In a world of rising interest rates, you don’t have to settle. There are still ways to get a low interest rate. You’ll have to work at it, though. Make sure your loan application is as attractive as possible. Also, make sure you shop around and opt for the lowest term that you can afford. In the end, you’ll come out with the lowest rate available to you.

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When is the Best Time to Lock Your Mortgage Rate?

May 8, 2017 By JMcHood

When is the Best Time to Lock Your Mortgage Rate?

If you were to think of the one thing you worry about most with a new mortgage, what is it? Did you say interest rate? You aren’t alone. Many Americans worry about rising interest rates and how it affects their mortgage. Luckily, you have options when you take out a new mortgage. Whether you buy a home or refinance an existing mortgage, you can lock your mortgage rate. Now the big question is, when is the best time to do so? What is the magical timeframe?

We take a look at your options here.

The Typical Lock Period

First, you should understand the typical lock periods. Generally you have the option of 30, 45, 60, or 90 days. That is a lot of options! How do you know what is right for you? Some lenders even often different periods. This complicates matters even more.

The longer you lock a rate, the more you pay. But, you pay in different ways. For example, a 30-day period on a 4.5% rate may be available for 0 points. This means the rate costs you nothing. But a 60-day period at the same rate may cost 1 or 2 points. You pay these points at the closing. But, you may also take a slightly higher rate on the 60-day lock and pay no points. Either way, you pay for the longer period in one way or the other.

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What are Your Circumstances?

Before you decide when the best time to secure your rate is, consider your circumstances. If you are buying a home, do you have a contract yet? If not, don’t hold onto any rates just yet. You don’t know how long it may take to find a home. You also don’t know how long negotiations will go on with the seller. If you pass your lock period, you must either pay for an extension or take the current rates, which could be higher.

If you are refinancing, rely on the expertise of the underwriter. Ask how long they think the process will take. They know by looking at your file what they may need. They can provide a ballpark estimate on how long underwriting may take. You can’t close on the loan until the underwriter clears your file, so it makes sense to ask.

Is your debt ratio close to the maximum allowed? If so, it makes sense to secure the rate you need when you can. This way you know you won’t have a debt ratio issue in underwriting. If you know even a slightly higher interest rate could put your approval at risk, don’t take a chance.

What if Rates Lower?

There is always the risk of rates decreasing after you lock a rate. What should you do? In all honesty, you might not have to do anything. The only time you really must react is if rates change drastically. Given recent history on rates, this isn’t likely. If, however, you stand to secure a rate that is at least 0.5% lower than your current rate, you have two options:

  • Ask for a float down option – This is an option some lenders offer. This paid service allows you to take the lower interest rate. But, you have to pay for it. Make sure you do the math to see if it is worth it. Sometimes the cost outweighs the benefit of the lower rate.
  • Go to a different lender – This is not an ethical choice, but sometimes it’s necessary. If you know you can secure a much lower rate somewhere else, you may have to change lenders. Try not to make a habit of this after a lender does too much work on your file, though. Again, make sure the change will make a drastic difference in your payment.

Know your Risk Tolerance

What it really comes down to is your risk tolerance. Are you a gambler? Do you like being on the edge of your seat? If not, and you are a more predictable person, lock in as soon as you can. If, however, you like the fun in waiting, wait it out. See how low rates get. You have to pick a rate sooner or later, but if you want to wait, you are certainly welcome to do so.

No two people will have the same idea regarding when they should lock their rate. Some follow the ‘rules’ shown that rates stabilize at the end of the week. This gives the market time to digest any new information that occurred during the week. Others believe Mondays are the best day to lock. Honestly, there is no best day or time to choose a rate. They can change many times in one day, let alone an entire week.

You know your circumstances and what you can handle. Base your decision on your own situation. If you have a specific rate in mind, don’t let it go. If it comes, choose that rate and move on. Don’t follow rates after that you will just drive yourself crazy.

If you have volatile circumstances, wait for the right time. Waiting for a purchase contract to get finalized is one example. Another is waiting to see if your debt ratio will get accepted. You don’t need to secure a rate at any specific time. As long as you have the lock in place before you close, you are good. Talk to your loan officer and see what works best for you. This is the best way to make the most of finding the right interest rate for you.

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