Shopping for a Home Loan: Lock in an Interest Rate Early
If you are shopping around for a home loan, you need to
keep some pointers and tips in mind. Through this article,
you are provided some basic information about locking in
an interest rate for a home loan. With this information,
you will be able to make better decisions about what home
loan options will be best for you.
Favorable Interest Rates -- Locking Them In
When you're looking for a mortgage, you're likely to shop
among lenders for the most favorable interest rate, and
the lowest points and other up-front charges. When you find
the most favorable terms and the lender that you want, you'll
apply to that lender.
How Locking In an Interest Rate Works for You
Lock-ins are a way to ensure that at settlement, what you
requested from your lender is what you'll get. A lock-in,
also called a rate-lock or rate commitment, is a lender's
promise to hold a certain interest rate and a certain number
of points for you, usually for a specified period of time,
while your loan application is processed.
Understanding Fluctuating Interest Rates in Today’s
World
Because interest rates change daily and sometimes during
the day, the longer a lender locks in a rate, the more risk
that they have the market will move against them. Therefore,
you pay more in points for a longer guarantee.
If interest rates are trending up, it makes sense to lock
in your rate. If interest rates are trending down, it makes
sense to "float" your interest rate so that you
can take advantage of a shorter lock-in period. When rates
are fairly stable, it also makes sense to "float"
your loan to take advantage of a lower price for a shorter
lock-in.
Even when you think it is easy to predict a trend in interest
rates, choosing not to lock in is a risk. That is because,
even in the middle of a trend, the daily fluctuations of
interest rates can be extremely volatile.
