A mortgage interest rate lock guarantees that a borrower will get a certain combination of rates, points and terms from a lender, according to Zillow.com. A point refers to one percent of the total loan amount, so if the loan is for $100,000, the borrower pays $2,000. The loan can contain zero to six points by law.
This interest rate lock protects the borrower from market fluctuations for the length of the agreed upon lock time usually between ten and sixty days. However this rate lock works both ways, it acts as protection if rates increase, but is a detriment if rates decrease. Another thing to remember, most people have better credit than they think, usually Fair Credit or better, keep this in mind while filling out our online form.
A rate can be locked when the seller agrees to the borrower's offer. The rate still depends on factors like the borrower's credit score, the LTV (loan-to-value), locality, type of property and several other considerations. It can be floated until the deal is done, but the reality is that it's usually a few days or a week. The paperwork has to catch up to the rate at the time of the lock. The closing package has to be prepared with that locked rate and that takes time.
There is no charge for a mortgage rate lock, says Yahoo.com, although it can cost you in the interest rate. A longer lock can mean a higher rate if the borrower is not careful. If the rate lock expires before the closing date, the lender might offer to extend. If they don't, that particular combination of rates and points might not be there again for the borrower. Short rate locks can end in this scenario.
Interest rates are influenced by market changes. If the rate is cannot be changed for a period of time, there is more risk to the lender than to the borrower.
Letting the rate float means you get whatever the rate is on the day the closing package is put together. That puts more risk on the borrower than the lender. Some prefer to let it float, to see if it gets just a little bit better as closing day approaches. Floating is the riskier option, for new home buyers than for those about to refinance their home.
The borrower has to answer that question. There is no easy answer. It comes down to the borrower's comfort with risk. Frequently, it also becomes a matter of bragging rights. Everyone wants to be able to say they got the lowest rate. But only the market influences rates. Lenders don't normally participate in negotiation because of possible discriminatory perceptions. Any quoted rate favors lenders, so be aware of that if you are looking to lock. A lock gives you the ability to forget about it while a float means taking a chance the rate will go up, not down.
No matter what you decide to do, Peak Home Loans can help. We offer financing and refinancing options for individuals with fair, good or excellent credit. Our experts can help you get the best rates and best terms for your loan. Peak Home Loans is here to help.
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