(LoanSafe.org) – You have been renting for years and have recently found the home of your dreams. The mortgage agreement has been signed, you have diligently researched current interest rates, and qualified for the mortgage. Just as you thought the hard part was over and no major decisions need to be made, you will need to decide whether or not you will want to lock in the today’s interest rate.
Some people do not realize that mortgage rates can fluctuate from week to week, and occasionally from day to day. Not even the wisest of real estate analysts can determine exactly what interest rates will look like in the upcoming weeks until your loan closes. If you do lock in your interest rate immediately, you may risk the chance of securing a lower rate if interest rates fall. Vice-versa, if you do not lock in your rate you may risk having a higher payment later if mortgage rates happen to increase.
Small change in rate can equal BIG change in payment.
What some borrowers are not aware of is the fact that small rate changes (as little as .5% or less) can add up to large increases or decreases throughout the life of the loan. During the last three years or so we have witnessed major decreases in mortgage rates and they are still very close to historical lows. It is not uncommon for an interest rate to rise or fall .5% or more within a short period of time. For example, a mortgage rate that increased from 5 percent to 5.5 percent on a 30-year fixed-rate mortgage at $150K, equals approximately $17K during the course of the loan.
Tips to help you secure the lowest rate possible:
– Keep a close eye on mortgage rates frequently here on Loansafe.org where we list the average rates being offered by various lenders daily. Since rates are very close to historical lows, now is probably a good time for potential buyers to lock in their interest rate instead of hoping they will decrease in upcoming months.
– Determine the cost of locking in your interest rate. Many lending institutions will allow you to lock in the mortgage rate for free for about 30-45 days. However, if you opt to lock in the interest rate for a longer period the lender may charge a fee to do so.
– Make sure you get everything in writing. Do not count on verbal promises from your lender because nothing is truly valid until you receive it in writing.
– For those who do opt to lock in the mortgage rate, make sure your loan is set for closing on time and before the lock-in period expires. If you feel that the account will not close in time, simply ask the bank if they will prolong the lock-in period.
Some lenders may also offer what is called a “float down” option. Generally for a small fee, certain lenders will lock in today’s rate, and if they happen to decrease before the loan closes, you can re-lock the rate during this time. If you find that mortgage rates are the fluctuating week to week this may be a good option to explore.