When is the Right Time to Lock-in a Mortgage Rate?
With mortgage rates currently at all-time lows, many people may be wondering, “When should I lock-in my mortgage rate?” Mortgage lenders often advise borrowers to lock-in a rate when you are pre-approved for a loan with monthly mortgage payments that fit within your budget.
What is a Rate Lock?
A rate lock is a guarantee* from a mortgage lender that the borrower will receive a certain interest rate for a specific amount of time. This essentially freezes the interest rate for a set period. Rate lock periods maybe 30, 45, or 60 days (sometimes longer). Once the rate lock period ends, the interest rate expires and will adjust according to current mortgage rates unless the lender agrees to extend the lock period. Additionally, the rate lock can be void if any information on the application, such as the appraisal or credit score changes.
With rates at historic lows, now is a great time to purchase a home or refinance your current mortgage and lock-in a low rate to take advantage of significant monthly savings! According to The Mortgage Reports, interest rates are predicted to rise in the next 90 days, so now is the time to act!
*rate lock policies may vary by lender
What Happens if Rates Increase or Decrease During the Rate Lock Period?
A rate lock would protect the borrowers’ interest rate from increasing if mortgage rates were to rise suddenly. On the contrary, if mortgage rates fall during the lock period, your rate won’t automatically decrease. One way to get a lower rate during your rate lock period is to inquire with your lender about a “float-down option.”
A “float-down option” is an agreement between you and the lender that is made after your rate is locked, which allows you to lower your rate to current mortgage rates for a small fee. The lender will advise you on whether floating-down will save you a significant amount on your monthly payments.
Should I Lock or Float?
At GuardHill, we will advise the borrower when the right time is to lock or float the rate. Typically, lenders inform borrowers to float when rates are steadily decreasing each day or week and lock-in a rate closer to the closing. However, if you are approved for a loan at a rate that fits within your budget, it may be the right time to lock!
The most important thing to consider is your monthly budget, and how much payment you can afford.
Speak with your mortgage company to determine which option is best for you! Contact us today!