Before finding out when’s the best time to lock, you might want to understand what a mortgage rate lock is all about. It’s a practice among mortgage borrowers, be it refinancers or homebuyers, ensuring they’ll get their desired rate even when mortgage rates head higher.
If you are keen on keeping your mortgage costs at realistic levels by keeping your rate low, getting a mortgage rate lock might be your best option. So, let’s unlock the important points surrounding the mortgage rate lock.
Let’s help you find a lender.A Mortgage Rate Lock Is
Mortgage rate locks protect borrowers against one of the most variable, ever-changing elements in the world of mortgages: interest rates.
By doing a rate lock, you get a guarantee from a lender that it will give you a certain interest rate and corresponding points for a certain period. This stipulated period, or rate lock period, can be as short as 30 days or as long as 60 days.
In exchange for “reserving” this combination of rate and points, you pay the lender a fee. The rule of thumb is for you to hold onto your rate until such time as you close the loan.
Do remember that the longer the rate lock period, the higher the fee. When you extend this period or when it expires, you have to pay an extension fee.
More recently, Wells Fargo was in the news over extension fees that it charged clients, totaling $98 million. The bank apparently charged mortgage borrowers when it was not their fault that the rate lock expired because of delays from their end, according to CNN Money.
Wells Fargo did promise to refund the mortgage rate lock extension fees it collected from September 2013 to February 2017 as per the report.
Get matched with a reputable lender today.Lock or Float
Rates move many times in a day. No one can predict rates but projections and preparations can be made.
That’s why mortgage experts advise their clients to lock (or float) their rate pending important events that could influence rates to go higher. Examples of these events are meetings of the Federal Reserve’s Federal Open Market Committee that could herald rate hikes, and economic indicators such as job reports and consumer price index.
Locking in on a rate is basically for your peace of mind, especially if rates are trending upward. But if you think rates are bound to go lower, as they are historically now, and are savvy about markets, you can choose to float your rate.
Is It Now or Later
Before you lock in on a rate, be sure you have gone around and compared a number of lenders’ offers. If you have found your desired rate, lock it and time it with your estimated closing date.
Just what if rates will drop tomorrow? Well, you can probably do a let’s-wait-and-see stance. But this could be complicated if you are moving along a mortgage schedule and rates are fluctuating by the day.
You can also consider paying discount points to lower your rate. A point is equivalent to one percent of your loan amount. While you can get a lower rate, your mortgage costs will go up.
Mortgage rates are volatile creatures, nothing can change that. But you can pin one down while you wait for your mortgage to close. Just make sure it makes sense, number-wise.
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