To lock or not to lock... that is the question. Many people are confused as to what it means to lock an interest rate. When we lock in an interest rate, we are committing to our investors the delivery of your loan. They in turn guarantee that particular interest rate for the specified dollar amount, property address, and borrower. Because they are setting aside that money for a specific period of time, the shorter the time period the better the rate that is offered. This is why standard rate locks within the mortgage industry are on a 30 day basis. The typical rates advertised in the newspaper are based on a 30 day rate lock. If your loan is not going to close within 30 days, your rate may be affected or you may choose to "float" your interest rate until you are within 30 days of closing. "Floating" simply means that your interest rate is not locked and your rate is subject to market fluctuations both positively and negatively.
When purchasing a home, you must have a fully executed and accepted contract prior to being able to lock your loan. The locks are based on borrower social security number and property address. Once you have an accepted contract, contact us as to current market conditions and discuss locking your interest rate. The positive side of locking your interest rate is your rate is guaranteed not to go up through the mortgage approval process. However, the down side is that if the market were to improve, your rate would not be affected. Whereas if you were to float your interest rate, you may benefit from market improvements, but you may also be negatively affected by market worsenings. Keep in mind that interest rates are offered in eighth percentages and market movement will typically affect interest rates in eighth increments. For example, if you are planning on receiving a 7% interest rate and are floating, market volatility may affect your interest rate by a 1/8 percent up or down. This means on a $100,000 loan, you stand to save approximately $9 per month in monthly payment if the market improves and lose roughly $9 per month in monthly payment if the market deteriorates.
We are more than happy to offer our expert opinions on whether it is a good time to lock or not based on the current economic environment, but the final decision is always left up to you. As everyone knows, the financial markets are living, breathing animals that are known to turn unexpectedly, contrary to all logic. What we can do is give you enough information to make as educated a decision as possible.
