How to Prepay Mortgages to Lock in Lower Rates

You can lock in low interest rates for a mortgage.

Bank interest rates and mortgage company home interest rates are subject to change with market conditions. The prime lending rate which banks use to borrow from each other dictates the current interest rates for consumer loans. A prospective buyer may want to lock in a low rate for a mortgage upon signing a sales contract. If the lending rates go up, the buyer is still able to get the loan at the previous low rate.

Instructions

1. Get the best home interest rates on a mortgage loan from a bank, mortgage company or mortgage broker. Bargain with the lender or broker for the best deal since the price of a home and the current interest rates for a mortgage are subject to negotiation. Even bank interest rates are somewhat flexible for mortgages.

2. Get a fixed rate on your loan, as opposed to a variable rate. Variable-rate loans are subject to interest rates that change with the market conditions. Lenders are not typically willing to lock in an interest rate for a loan that is subject to a variable rate.

3. Ask the lender to lock in the current interest rate for you until the closing on the house. You will prepay for the privilege of locking in the rate in terms of points, which amount to 1 percent of the loan amount. Find out how many points it will cost to hold the low rate for 30 to 90 days while you arrange the closing.

4. Prepay the lender at the closing based on the amount of points charged for locking in the low rate. If the loan is for $200,000, then each point costs $2,000.

Tips & Warnings

• Mortgage brokers have connections with multiple lenders, and are often able to find the best interest rates on loans by checking with several lending companies.

References

• Federal Deposit Insurance Coporation: Looking for the Best Mortgage
• U.S. Department of Housing and Urban Development: Looking for the Best Mortgage
• City Town Info: Fixed Rate Mortgage