March 15th, 2017 8:30 AM by Jackie A. Graves, President
One huge question among home buyers who need a loan is
this: when to lock in mortgage rates. Some panicky sorts
might presume they should lock one in ASAP (because have you seen how
rates are rising?), while others argue that the waiting game could
pay off (in case rates fall). Who’s right?
A rate lock is important because mortgage interest rates
fluctuate in response to market forces—much like the price of apples or
homes—and even small fluctuations can cost you big-time.
A mortgage rate lock, as you might guess, locks in an interest
rate for your loan for a certain period of time before you close the deal.
Let’s say, for instance, you see that rates seem like they’ve hit rock bottom,
like at 4%. Lock that in for 30 days, and even if rates shoot up to 5% by the
time you close on your home three weeks later, your “lock” means you still
get a loan at that sweet 4% interest rate.
But this knife can cut both ways. What if you
lock in at 4%, but then those rates dip still further to 3%? That could mean
you’re stuck paying more for your mortgage than had you refrained from
locking in and kept your options open. As such, trying to figure out the
perfect time to lock in mortgage rates can keep borrowers up all night.
There’s no crystal ball, of course, but there
are some ways to figure out when a rate lock is a good bet for you.
Sign No. 1:
You’ve made an offer and are in contract
Generally, it makes sense to lock in your rate
after you’ve made an offer that’s been accepted and you’re
in contract to own a home. This means you can expect to close
within a few weeks—and most lenders will offer to lock in your rate for
free for 30 days. That’s the perfect window of time to take you through to the
All that said, there are instances where you may want to
lock in for longer. Let’s say, for instance, you agreed to give the
sellers time to find a new home before they move out. Or if you’re
self-employed, the lender may take longer to verify your income. In cases
like this, consider requesting a lock lasting 90 days, 120 days, and
even 150 days. You might have to pay for this privilege, but it may be
well worth the money if you need the extra time, says Darren Ferlisi, a
lender at Integrity Home Mortgage in Frederick, MD.
If interest rates are generally trending upward, you should
lock in sooner rather than later before rates spiral higher. And currently
all signs point up.
After the Fed acted to boost a key interest rate in December,
our chief economist, Jonathan
Smoke, declared that “rates like we’ve seen for most of the
past five years are indeed history.”
All in all, be sure to check the latest mortgage rates before you take the plunge.
Whether interest rates are going up or down is one thing,
but if they’re vacillating both ways wildly, that’s another reason to
crave the stability of a rate lock.
“Rates today are unusually volatile—they are making large moves
up and down in short periods of time,” says Joe Parsons, a loan
officer at Caliber Home Loans in Dublin, CA. “For this reason, prudent
borrowers are locking their rates early in the process.”
If you’re borrowing near the limits of what your financial
profile will allow, locking in is smart because it could keep
rate fluctuations from leading to a nasty surprise when you close.
Here’s why: Typically a house payment should be no
greater than 28% of your gross monthly income—so, for
instance, if you’re making $6,000 per month before taxes, that means a
house payment of no more than $1,680. If a higher interest rate pushes
that payment above that 28% threshold, then your lender may balk at
loaning you the money, causing the whole deal to fall through.
early rate lock means there are no hidden surprise down the road,” says Mark Livingstone, president of
Cornerstone First Financial, a mortgage lender in Washington, DC. Because after
all, last-minute surprises are the last thing you want when you’ve put all this
time and effort into buying a home.
Goldstein - To view the original article click here