Is it Time to Lock in My Mortgage Rate?
Answering this question depends on a range of variables, including your budget and financial priorities and current economic conditions that influence interest rates.
For instance, if rates could increase before the closing date, locking in now may make sense; but if rates look likely to decline before your closing, waiting and seeing what unfolds could be beneficial.
What will it mean to lock in my mortgage rate?
Locking in your mortgage rate involves making a commitment to one particular interest rate for an agreed-upon amount of time - usually starting when accepting an offer to purchase until closing your new home.
Your lender will honor the rate that was originally locked; if rates drop during the closing process, they may negotiate for a lower rate with you.
But, allowing your loan lock to lapse because you think rates will decrease will violate the purchase contract and could cost you the house.
Reasons Mortgage Interest Rates Change
Mortgage rates fluctuate for various reasons. Some factors, like the economy, may be out of your hands while others depend on factors like your finances and loan program selection.
As the economy improves, more consumers desire home purchases and mortgage lenders become more willing to grant them loans, increasing demand for mortgages and the associated interest rates.
Inflation also has an impactful effect on mortgage rates; as it erodes the purchasing power of dollars over time. As this makes it more challenging for mortgage lenders to generate a profit on loans, they must keep interest rates high enough to compensate for inflationary effects and stay profitable.
The Federal Reserve sets the federal funds rate, an important determinant of bank funding costs and consumer loans such as APRs, savings account APYs, and auto loan rates.
Benefits of Locking in My Mortgage Rate
For homebuyers considering locking in their mortgage rate, understanding its advantages is paramount. Locking can remove any possibility of fluctuating interest rates during your loan process that might alter your budget significantly.
Mortgage rate locks provide an opportunity to lock in a lower loan interest rate between when your offer is accepted and when closing occurs on your new home. Usually, the longer the lock period is set, the lower could be your rate.
Locking in a rate can be particularly useful in an unpredictable housing market and your closing date is still several weeks away, as it prevents having to pay a higher mortgage rate later - potentially saving significant costs down the line.
How Long Will a Mortgage Rate Lock Last?
Locking in a mortgage rate before home-hunting can ensure you find a loan tailored specifically to your needs and can also ensure lower mortgage rates in the future. When possible, it's best to lock it at an advantageous moment.
Predicting rates is not always simple, however; the Federal Reserve sets its base rate via a board of governors, while many outside factors can have an effect on the market.
Most lenders provide 30- to 60-day rate locks; some even permit longer duration.
If your mortgage loan fails to close within the lock period, a fee or higher interest rate could be assessed against it, making payments harder to afford, especially if a larger down payment or points payment were necessary for getting a better rate.
When is the Right Time to Lock in My Mortgage Rate
Mortgage rate locks can be invaluable tools for borrowers. By providing assurance that payments won't change significantly over time even as interest rates change drastically, borrowers can enjoy peace of mind that payments won't fluctuate significantly with fluctuating interest rates.
One effective method for deciding when is the ideal time to lock in a mortgage rate is using your budget and financial situation as guidance. Rates often fluctuate before becoming stable; so waiting may be advantageous in your favor.
However, keep in mind that unexpected circumstances could void your rate lock agreement, such as changes to your mortgage application or financial circumstances during the process.