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Should You Lock In Your Mortgage Rate?
In 2022, financial experts forecast that mortgage rates will go up. Analysts and economists at well-known financial websites like Nerdwallet, Bankrate.com, and Realtor.com agree that the rise will happen fairly soon. All the signs in the economy indicate that the pressure on increasing loan rates will continue this year.
Since the industry experts are on the same page about rising interest rates, perhaps you are looking at your current situation and are wondering if this is a good time to lock in your mortgage rate, and if so, how you would do it. When you lock in your mortgage, you freeze the interest rate at which you are borrowing funds from the time of your offer to the close of your escrow. You cannot change your loan application during this time, and you have to meet certain deadlines and criteria during this lock.
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When You Lock In Your Mortgage Rate, You Will Not Be Affected By Rising Rates
Experts agree that property buyers right now should consider locking in their rates. This protects them from market volatility. For instance, if your lender offers you a 4.5% interest rate and they lock it for 45 days, you will get that rate for your loan even if the rate increases to 4.75% during those 45 days.
Experts at LendingTree also agree that this is a good time for buyers to lock in their rates. They pointed out that the current rates are already higher than previously forecasted. There is no way to predict the future, but all the signs indicate that rates will soon edge up higher.
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A rate lock provides advantages to both the borrower and the lender. The borrower is ensured a lower rate as rates continue to rise. The borrower would not have to worry about that part of the loan and can focus his attention on other parts of the buying process. The lender will not need to worry that the borrower will suddenly pull out of the transaction because the rates rose. So, a rate lock benefits everyone involved, and there are really no disadvantages.
What To Think About Before Locking In Your Mortgage Rate
There are certain things that you should consider before you lock in your rates. First and foremost, you have to be in a contract to purchase a specific piece of property. Then, you have to make a decision on whether it is the right time to lock in your loan rate and what consequences you are comfortable with. If you lock in your rate right away, would you be filled with regrets if the rates go down? On the other hand, if you choose not to lock in, can you risk a rate increase that will result in a higher mortgage payment that you might not be able to afford? These are questions that you have to carefully consider.
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There are other options as well. According to an executive at Morty, a digital marketplace for mortgages, if the lender agrees to it, you can ask for a float-down agreement where you can lock in on the current rate, but have the option to take a lower rate if the rate drops within the period of the lock. This extra service can cost about one-half to one percent of the total amount of the loan, which is on top of any other fees that the rate lock charges.
There is also a possible caveat for rate locks that go beyond 30 days. 60-day to 90-day locks cost more in fees, about one-quarter to one-half percent of the total value of the loan. Some mortgage lenders charge no fees for a 30-day lock. For longer lock periods, the lender might quote you a higher interest rate or add on a fee.
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How To Lock In Your Mortgage
The most efficient way to lock in your mortgage is to ask your lender if you qualify for a rate lock. If you qualify, ask for full details of the loan terms and what it will cost you, and make sure you are completely clear on that. Industry specialists say that when a lender quotes you a rate, they will also offer a rate lock as standard practice. Each lending institution processes rate locks in their own way, so be sure to ask questions if you are not clear about it.
Getting a rate lock is not really a complicated process and does not take a lot of extra time. Getting pre-approved for a loan can start you on the path of getting a good mortgage rate, but it does not actually lock you into any one rate. After you get pre-approved, you might still change your type of mortgage as you get further down in the buying process that can affect the kind of loan you will take out and the rate that you will end up locking into.