Essentials Of Locking In Your Loan
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Essentials of Locking in Your Loan
Introduction
With interest rates fluctuating unpredictably, the initial good faith estimate you receive for a mortgage may not reflect the final interest rate at closing. Since rates can change daily, borrowers can lock in their interest rate and points for a set period to ensure stability.
Understanding Loan Lock-In
Locking in a loan varies by lender, but it’s crucial to get it in writing. Avoid relying on verbal agreements. If a lender refuses to provide a written contract, consider switching. A solid commitment should outline the locked interest rate, the number of points, and the duration of the lock, typically around 30 days.
Costs and Considerations
Locking in an interest rate often involves a slight premium and may require an application fee, appraisal, or credit report. Don’t try to predict interest rate movements. If a higher rate would disqualify or financially strain you, locking in is wise. Shorter lock periods generally cost less than longer ones.
When Rates Change
If rates increase, a locked rate benefits borrowers. But if rates drop, options are available. Some locks include a float-down feature, allowing you to take advantage of falling rates, though typically for an extra cost. For example, a 60-day lock might cost one point, while adding a float-down feature could increase it to 1.5 points.
Negotiating Rate Changes
Even without a float-down feature, reach out to your lender if rates decrease by half a percent or more. If closing is imminent, lenders may be less flexible, but with more time before closing, they might adjust the rate to retain your business.
Risks and Strategies
If you decide to walk away from a lock, you may forfeit any application fees paid. Attempting to delay until a lock expires for a better rate isn’t foolproof?"some contracts may take the higher of the two rates.
Avoiding Lock Expiry
Locks can occasionally expire before closing. If you suspect intentional delays on the lender’s part, consider filing a complaint with the regulatory authority, though proving fault can be challenging. Ensure you’re prompt in submitting documents and available for inquiries to avoid any hold-ups. If the expiration date looms, maintain active communication with your lender to hasten the process.
By understanding and actively managing the loan lock-in process, you can navigate fluctuations in interest rates more effectively, ensuring you secure the best possible terms for your mortgage.
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