How to Lock in Interest Rates for a Home Loan
Because interest rates can fluctuate, it sometimes pays to lock in an attractive interest rate. A lock-in is a lender's commitment to guarantee a specific interest rate if you purchase a home within a certain period of time.
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Instructions
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Talk to your lender about its conditions for locking in a rate.
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Ask if you will have to pay points to lock in the rate. (A point is equal to 1 percent of the amount you will be borrowing; buyers often pay points for locking in interest rates, for buying down interest rates, and as part of closing costs.)
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Find out if locking in will affect your interest rate. Some lenders may require you to pay a slight premium over a current rate to lock in their commitment.
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Ask your lender how long the lock-in is good for. Typically, a lock-in will require that the purchase be finalized, or closed, within a preset time period.
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Tell your lender when you're ready to lock in a rate.
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Tips & Warnings
If interest rates are rising, or if they have been volatile, locking in a rate can give you some peace of mind.
When the economy is strong, money is "loose" and interest rates are relatively stable, lenders are usually more willing to lock in rates.
Before committing to a lock-in, calculate your potential mortgage payments using different interest rates. If you can live with a higher payment and interest rate, you may want to avoid the lock-in, which can be complicated and even costly.
Many lenders will not lock in a rate unless you have made an offer on the property.
Some lenders also require the property to be appraised before committing to a lock-in.
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Comments
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Nov 22, 2005
The best time to use an adjustable rate mortgage (ARM) is when you do not plan on living in that particular home for a very long time. An ARM is actually a great way to go in this particular scenario. Remember, it's federal law that your payment cannot increase more than 7.5% from the previous year's payment. Most people usually refinance every 3-5 years, so if the payment gets too high, you can always refinance and get a lower fixed rate. -
Nov 22, 2005
My experience has been that, if you plan to live in a home for a long time, you'll probably benefit from a fixed rate. This way, there are no surprises. I've seen friends get their rate and monthly mortgage payment raised when they could least afford it.
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Nov 22, 2005
I've now completed 3 trips through the mortgage game and have this advice. Keep it simple. My first time was an FHA 30 Year Fixed. Not too painful, and the mortgage rate was as we expected. Next I tried a conventional 80/20 with the 80 as an ARM. Somebody decided not to include an escrow account on this on so it would sound like a better rate. Not the case - the savings of the 80/20 was quickly overshadowed by the hassle of keeping up with your own escrow account and the unexpected rise on the ARM. Now I am refinancing back to the first setup (after jumping through hoops with lenders about the 80/20). Bottom line; take your time, read all you can, keep it simple.
