One of the decisions you will face during your home buying process is whether or not to lock in your interest rate for your mortgage. The term,” Lock” means that the lender will hold that interest rate for a specific period of time. Rate locks are usually 15, 30, 45, or 60 days with adjustments to the rate for the time frame, the longer your lock the higher your rate. A 15-day lock may be 4% and a 60-day lock the same day can be as much as 4.125% as an example.
Whether or not to lock is always a stressful decision for most borrowers. If you don’t lock and rates go up your payment will be higher, and if you do lock and rates go down you could miss out on a lower payment opportunity. In some cases, you may lock and find yourself in a position where the sellers are not ready to close and your rate lock will either expire or you may have to pay to extend the rate.
Here are some tips to avoid the rate lock dilemma:
- Rate timing, nobody can predict the market so don’t try. For every $100,000 in mortgage a 1/8 difference in rate is only $7.23 per month, so the numbers are not that dramatic.
- Prior to locking confirm with your realtor that the sellers are ready, willing, and able to close within the time frame. If the sellers are repurchasing you need to have them confirm that time frame and continue down the line to the last domino.
- Confirm with your attorney that they will be available within that the time frame.
- Have your realtor confirm the sellers’ attorney time frame.
- Confirm with your attorney whether or not the seller may have open title issues that may take time to resolve.
- Confirm with your lender that they will have you clear to close.
If you follow the above you will usually be able to close in timing with your rate lock. If you get into a situation where you can’t close in time, discuss the extension options with your lender. These options vary from lender to lender and can sometimes be done free of charge.
Image via Bankrate
