Locking In Your Interest Rate

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When you have a contract in hand on the house that you intend to buy, you will contact your lender again to get things moving on your preapproved loan. You will now face the big question: Do you want to lock in your interest rate or would you let it float? And the only way to answer that is with another question: Do you like to gamble? Nobody on earth can predict changes in interest rates with any accuracy, although that fact doesn’t stop people from trying. Most of the economists cringe when asked about interest rates. Here’s how to make your decision about whether you should roll the dice:

1. Lock in the rate immediately if even a slight rise in interest rates could keep you from qualifying for your mortgage.
2. Lock in your rate if worrying about the daily ups and downs of interest rates causes you to lose sleep at night.
3. Let it float if it would grate on you for years that you didn’t nab the very lowest rate and your gambler’s guts tells you that the rates are going to go down.

So in other words it’s all about you and your tolerance for risks. In most cases it is wise to lock in early and make sure your loan goes to closing before that lock expires. Most lenders will lock  your rate for 30-60 days or so without charge. That can be a wise move but for people buying homes that are still under construction, because finish dates are always at the mercy of the weather and other complications. When dealing with a mortgage broker, it is especially important to be clear about your intentions to lock a rate. After all it’s the lender who is locking the rate and not the broker. Unfortunately when brokers sometimes promise locks they can’t deliver when rates start rising. So always get your lock confirmation in writing and push everyone to the closing table in a hurry if your closing bumps up against your expiration date. It is not unheard of for lenders to drag their feet on closings when rates are rising and rate-lock commitments are about to expire. They stand to profit quite a bit from dallying.

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