Interest Rates: When is the Best Time to Lock?

I always advise my clients to lock in their interest rate at the earliest opportunity. Gambling with a client’s interest rate is never advisable. In my business, I have a standardized system in place that we adhere to for all of our clientele. A mortgage loan cannot be closed without locking in a rate, and there are three
main elements to take into consideration:

  • Interest Rate
  • Points
  • Length of the lock

Locking in on a rate does not obligate the client to commit to the loan until the loan is actually closed. The lock simply eliminates any risk of the borrower being exposed to market volatility. It provides the security of having time to complete the mortgage and Real Estate transactions with some sense of order. The lender must disburse funds to complete the transaction within the rate−lock period, or else the original commitment to provide a loan at a certain interest rate will expire.

When a lender permits an extended lock−in period, the borrower will usually see either a higher interest rate or more points associated with the loan. The lender does this to minimize their own exposure to market volatility; hence the borrower pays for the lender to take on this risk.

For example, a 30−day rate lock commitment may cost the consumer one−half point, while a 60−day rate lock commitment could cost 1 full point. If the borrower needed an extended lock period, but did not want to pay points, the lender could make up the difference in the interest rate. In this case, typically, a 60−day lock would have a higher interest rate than a 30−day lock.

In my business, our standard procedure is to lock in a rate as quickly as possible once we have received the loan application. My team and I let our clients know that while interest rates fluctuate daily, most lenders do not want to lose any business. We know that in many cases, if there is a significant rally in the market that causes interest rates to drop .25% or more, we can ask the lender to renegotiate the rate. or understand that we will take the loan to another lender.

Often the lender allows for a renegotiation of the rate to avoid losing the loan to another lender. If we allow our clients to sit on the fence and not lock in a rate quickly, we would leave them exposed to market volatility. Then, if rates do increase, the borrower may be unable to qualify for the loan they want, which is a situation we try to avoid at all costs.

By knowing our clients’ needs and working intimately with them to make the right decisions, my team and I are proud to say that we have many clients who are raving fans.

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