Regardless of whether you are applying for a new home loan for a purchase or a refinance, your loan officer will ask you one important question early in the process that could ultimately save you or cost you thousands of dollars over the years. This question is whether or not you want to lock your interest rate.
Mortgage interest rates change regularly. Most of the time, these are small adjustments. However, they can sometimes change dramatically within a relatively short period of time. The difference of even a quarter of a percentage point on a mortgage interest rate can equate to thousands of dollars over the life of a loan. This could be money that you save if you lock your rate at the right time. If you lock in at a higher interest rate, however, you will pay more in interest charges than you otherwise would.
Unfortunately, it is not possible to always accurately predict the movement of interest rates. Your loan officer could provide you with some insight on market conditions, but the only way to know with certainty what your interest rate will be at closing is to lock it in. You also must close on the loan before the lock expiration date in order to keep that rate.
How can you decide what to do if there are no certainties? Some loan applicants are very sensitive to rate adjustments. For example, the loan amount may need to be adjusted downward if the interest rate increases even slightly. If you are in this situation, you may feel more comfortable locking in your rate. On the other hand, if you have some wiggle room and are willing to take a chance with the unknown, you may feel confident in your decision to float the rate for a few more weeks.
Before you decide whether to lock your mortgage interest rate or to float it, you should inquire about all of the lender’s rate lock policies. Ensure that you fully understand both options before you make a decision that is right for your unique circumstances.
Contact one of our loan consultants to learn more.