Like many other American consumers, you may be gearing up for spring home-buying season. This is the busiest time of the year for consumers and lenders alike, and like everyone else, you are probably looking to lock into the lowest interest rate possible.
There’s also a good chance you’re following “vintage guidance,” for lack of a better term, and doing comparison shopping and checking your options with your real estate agent. But what’s the deal with locking in that interest rate? Here’s a quick primer that may be of help, especially if you’re a first-time home buyer.
For starters, locking in a mortgage rate is merely optional. You don’t have to lock in a rate, but if you don’t want any unpleasant surprises before closing, it would be best if you do. Mortgage rates can be very fickle, and unless you’re a professional number-cruncher (and even if you are), it’s impossible to accurately predict rate changes with a lead time of a few weeks or months.
But if you lock in your interest rate, that would make the lender obligated to honor the rate that was locked in, even if rates go up or down before the closing of the loan. Take note of this, because mortgage rates have been known to change by the double-digits in basis points (hundredths of a percentage point) from time to time.
However, there are some other things to remember when locking in rates. You will have to pay points (a small percentage of the loan’s value) in order to lock in your rate for a certain period of time, may it be a month, 45 days, or two months. As for the timing, we advise locking those rates in only when you’ve signed a purchase agreement; you don’t want to spend most of the lock period house-hunting. We also advise you, as a consumer, to work closely with your lender so that you know when exactly to lock in your rates. Further, longer lock periods cost more to lock in, so weigh that factor in as well.
At the end of the day, there is no right or wrong answer when it comes to the duration of your lock period, so remember once again to check with your lender to verify when the timing would be just right.
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