How Far In Advance Are You Locking In Your Mortgage Rate?

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How Far In Advance Are You Locking In Your Mortgage Rate?

By The BIDaWIZ Team on November 23rd, 2012 at 4:00 pm

Home buying has begun to increase again as prices have stabilized in many parts of the country. The latest new residential construction report for October 2012 indicated a 3.6% increase year over year, which is the highest in almost four years. This data suggests that more mortgage applications have and will be filed in the coming months. Applicants need to understand the various options to lock-in a mortgage rate. This also applies to those planning on refinancing.

Locking in your mortgage rate
Lenders will require borrowers to lock-in a mortgage rate at least five business days prior to closing. The borrower has several options in terms of how far in advance they’d like to lock-in the rate; it doesn’t need to be five days before closing. The options available range from 15 days to 60 days. Generally speaking, the longer the lock-in period, the more costly the mortgage will be since rates could fluctuate and it’s riskier for the lender. Shorter lock-in periods allow the lender to measure the level of risk with a greater degree of precision.

What if I lock-in and rates fall?
It’s possible that a lender may provide an initial quote that you decide to lock-in, but closing takes longer than expected. This can be hurtful to the borrower in a falling interest rate environment, which is the case of today’s market. If we compare the interest rate in May 2012 on a 30 year mortgage of about 3.97% to today’s of 3.41%, there was a 50 basis point drop. This doesn’t necessarily mean you’re completely stuck with the initial rate. You could ask the loan officer about the interest rate drop and if they’ll revise the initial quote. It’s still negotiable.

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