Is Your Interest Rate Locked In?

We make it a point to touch on the subject of locking in your interest rate for your mortgage loan from time to time; so for those of you who are entering the home buying process for the first-time here's the important information you need to know.

What does the term "lock-in" mean?

When you decide to purchase a new home one of the first items on your list of "to do's" will be to shop for a good mortgage lender who is offering a low interest rate, low points and low fees. When you find one and begin the loan process you want to be sure that the interest rate that lured you to the lender in the first place is the actual interest rate you will receive. In order for this to happen you must instruct your loan representative to "lock-in" your mortgage interest rate. In other words you make a verbal and/or written agreement that this is the rate you will agree to pay for your mortgage loan. By failing to do this one important step - you could cause your interest rate to close higher than you anticipated since interest rates change on a regular basis.

You must also be aware that the mortgage lender is only responsible to hold or promise you the proposed interest rate for a certain period of time - just to get you through the loan approval process and to the closing table. This can be anywhere from 30 to 90 days. It would benefit you to work closely with your loan representative and make sure that your required paper work is in order - do everything you can to make sure your files are organized and up-to-date. Call the loan rep regularly to see if they need anything or if everyone is responding on a timely basis to any requests - such as verifying employment for example.

So what's the downside of "locking-in" in your interest rate and points?

Well since the market rates are based on a number of factors - such as oil and gas, energy, the stock market, overall health of the economy, etc the interest rate could actually go down. If this happens - talk to your lender and see if the company would be willing to offer you the lowest rate possible for your mortgage - it never hurts to ask and could save you significant dollars.

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Points - are additional charges that you must pay to the lender who is financing your mortgage. Generally you will pay for these points at the closing table and can estimate that one point is equal to one percent of the loan amount. Sometimes the lender may let you add the points into your mortgage balance so you can include them in your monthly payment.