"Locking" interest rates

To say I'm passionate about locking interest rates is an understatement! As a mortgage lender, I remember the interest and time dedicated to detailing every possible aspect of interest rates. The thought of inputting data manually into spreadsheets that would eventually be interpreted and used to make interest decisions was mind-numbing. However, as an experienced mortgage investor, I now enjoy entering that data manually, and enjoying the results immediately.Locking mortgage rate locks are one of the easiest and most effective ways to lower your mortgage rate. In order to understand how a mortgage rate lock works, you must know how mortgage rates are determined. The Federal Reserve decides interest rates by taking into consideration three factors: economic data, unemployment data, and inflation predictions. The resulting figure is the fed rate or the mortgage rate.There are two primary benefits of locking in interest rates: preventing over-bleeding and controlling overall costs. When a mortgage lender decides to lock in interest rates, they essentially agree to charge a certain rate for a set duration. During the tenure that the interest rate lock applies, the lender can charge whatever they like. After the lock expires, the lender is free to charge whatever they like, since they know they won't be able to increase rates. This gives home buyers peace of mind while shopping for a new home.Another benefit of locking mortgage rates is controlling overall costs. Mortgage lenders who choose not to lock rates have significantly higher closing costs, due to the additional time needed to perform additional loan evaluations. This extra time increases the total amount required to close a mortgage loan. Home buyers often prefer to acquire a mortgage from a lender willing to lock their interest rates, rather than go through the hassle of applying to multiple lenders.A third benefit of locking mortgage rates is a "sticky" interest rate that remains in place until the contract ends. As a homeowner, you may decide to sell your home after the contract has expired, thereby avoiding the potential of additional fees associated with changing interest rates. If you are planning on selling your home within a short time frame (i.e., within three years), a mortgage rate lock is an excellent way to lock in a low rate. By locking in the mortgage rate at the outset of the contract, a home buyer avoids "flipping" the property during that period.Before purchasing a home, it is critical to discuss a mortgage rate lock agreement with your real estate agent or lender. You may be required to sign a non-disclosure agreement or agree to the lender's repayment plan. In either case, be sure to read and understand the fine print of any agreement before signing. If you are thinking about purchasing a home through a mortgage rate lock agreement, be sure to check with your lender to ensure there are no other costs (such as prepayment penalties) involved.Locking interest rates is also beneficial for families seeking to purchase loans on multiple properties. Multiple loan payments may be lower when interest rates are locked in for a longer period of time. The advantage to locking interest rates is that the monthly payments may remain consistent for several years while rates fluctuate. This can help to determine whether a purchase loan is the best financing option for a family's individual situation.Locking interest rates is a sound financial practice. It helps to protect mortgage holders by ensuring they do not lose out on potential sales due to changes in mortgage rates. Be sure to review the fine print of any locking agreement before signing. Be aware of the penalties if a lender decides to terminate your locking agreement. To learn more about mortgage rate locking, register for a free mortgage guidebook.

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