Rate Lock

Locking Your Mortgage Interest Rate: A Good Strategy

Whenever I hear people talk about mortgages, it isn’t long before I start to hear words like "volatile" or "unstable", and these folks aren’t being unreasonable. Real estate financing in 2010 hasn’t gone as expected at all, and many are pondering on what the future of the market will be. Luckily, consumers have a way around the worrisome problem of interest rates. They can get a rate lock.

What is a Rate Lock?

It is simply a lock on the interest rate you will pay for a given mortgage. The lock is a mutual agreement between the borrower and lender, ensuring that the loan will carry a specified interest rate between the time that it is locked and the date of that lock expiration, usually 30 or 45 days. It protects the borrower against an increase in the rate, and the lender against a decline in the interest rate.

The Price of Peace of Mind

This year, rates have been on a downward trend. A stoppage in foreclosure proceedings in many areas as well as government intervention could all play roles in the fluctuation of rates over the coming months. Couple that with the fact that a refinance or new mortgage takes longer to close than ever before and you have a recipe for a lot of stress. Paying a little extra in order to ensure your investment is a good one makes sense to me.

Watch Out for Tricky Brokers

Make sure that whatever lender or broker offers you a rate lock is actually locking the rate for you. Ask them to show you a lock confirmation directly from the lender. The lock confirmation will state plainly when the rate was locked and at what interest rate, and also when the rate expires. Most rate locks are for either 30, 45, or 60 days. These days, most lenders are not able to close a loan in 30 days, so you are better off trying to get either a 45 day lock or longer if you can. Remember, the longer the lock period, the higher the interest rate so be careful.

Many brokers are trying to trick people into going with them by telling them that they can lock the rate on the same day that they first talk to them. In most cases, this is not true and is just a ruse to get the borrower to send in their documents or pay an up front application fee. In order to lock a rate with most lenders you will have to send in your documentation, get qualified by the processors, then sign a whole packet of legal disclosures. Once the processor gets these disclosures back and submits the entire file to the lender, only then will most lenders allow you to lock a loan rate.

Send in Your Documents

The most important thing to remember is that rates are extremely low right now. In fact, these are the lowest rates in the last 26 years and that means that there is nowhere for rates to go but up. The Fed cannot lower the rate any more and the latest rounds of quantitative easing had the reverse effect of actually raising interest rates. Now is not the time to wait, it is the time to act. My advice to anyone who is serious about obtaining a low rate mortgage is to decide on a lender quickly and then send in your documents so that you can lock that low rate. The longer you wait, the greater the risk that interest rates will increase.