One of the biggest questions of home buyers who are looking for a loan is about the best time to lock their mortgage. Those who are panicky assume that they should do it as soon as possible, while others argue that it pays off to play the waiting game. Which is right, then?
A rate lock is a must due to the fluctuations on mortgage interest rates as a result of market forces, and even the tiniest fluctuations can cost you big time. Of course, there is no crystal ball that will tell you when to lock your mortgage rate. Good thing there are several ways to know if a rate lock suits you.
Rising interest Rates
When interest rates trend upward, you might want to lock sooner instead of later before rates skyrocket. Just make sure that you check the newest mortgage rates first before taking the plunge.
You Made an Offer and There’s a Contract
In general, it makes perfect sense to lock in the rate after you made an offer that has been accepted, and you are in contract to owning a house. It means that you can expect to close in a matter of weeks, and many lenders will offer to lock in the rate for free in duration of 30 days. This is the best window of time that can bring you to the finish line. Having said this, there are cases when you might want to lock in for a longer time. Here, you might request a lock that last 90 days, 120 days, or as much as 150 days. While there is a chance that you will pay for such privilege, it will surely be worth your money when you require an extra time.
You are on the Bridge of Qualifying or Not Qualifying for the Loan
If you are borrowing close to the limits of what your current financial profile allows, it is smart to lock in since it can keep rate fluctuations to an unwanted surprise once you close. Why? Usually, house payment must not go more than 28% of your gross monthly income. If you make $6,000 every month before taxes, it means house payment of not over $1,680. When higher interest rate pushes this payment more than the 28% threshold, your lender can balk at loaning cash to you, which can cause the entire deal to fall through.
With an early rate lock, it means there will be no hidden surprise along the way. After all, the last thing you would want are last minute surprises after you have exerted all your effort and time into buying a house.
Volatile Interest Rates
It is one thing if the interest rates are going down or up, but if they vacillate both ways in a wild manner, this is another reason for you to crave for a rate lock’s stability. Today’s rates tend to be very volatile as they make big moves up and down within short spans of time. This is why prudent borrowers choose to lock their rates at the earliest point in the process.
Posted by Randy Blakeslee