Locking In The Interest Rate On Your Mortgage

Locking In Your Mortgage Interest Rate

Understanding Interest Rate Movements

• Rate Influences: Mortgage interest rates are influenced by bond markets rather than directly by the Federal Reserve Bank. While the Fed's actions impact short-term borrowing rates between banks, mortgage rates are more closely tied to bond market movements.

• Daily Fluctuations: Since bond markets fluctuate daily, mortgage rates can change frequently. Even minor changes in rates can significantly impact the cost of a long-term loan, such as a 30-year mortgage.

Why Locking In Your Rate Matters

• Rate Lock Definition: Locking in an interest rate ensures that the rate will remain fixed for a specified period, protecting you from fluctuations that could increase your monthly payments.

• Risk of Unlocked Rates: Without a rate lock, your interest rate can change from the time of application to the actual funding of your loan, which can take several months. This variability can be risky if you’re stretching your budget to afford a home.

How to Lock In Your Rate

• Points and Duration: When locking in a rate, you typically agree to pay a percentage of points. A point equals one percent of the loan amount. The cost of locking in a rate varies with the length of the lock:

  • 30-Day Lock: Usually costs between 0.25% to 0.50% of the loan amount.

  • Longer Locks: Can cost between 0.50% to 1.00% of the loan amount.

• Negotiation: These costs are negotiable. If a lender offers a rate lock that seems too expensive, you can negotiate or seek offers from other lenders or mortgage brokers.

Tips for Managing Rate Locks

• Evaluate Your Needs: Determine how long you need the rate lock based on your home-buying timeline. A longer lock period can provide more stability but at a higher cost.

• Compare Offers: Shop around and compare rate lock options from different lenders to ensure you get the best deal.

Conclusion Locking in your mortgage interest rate can protect you from potential rate increases and provide a stable payment plan as you purchase your home. Understanding the cost and duration of rate locks will help you make an informed decision and secure favourable terms for your mortgage.