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When it comes to interest rates, mortgage applicants should pay close attention because every little bit of interest counts. For buyers worried that rates will rise between the time they apply and their closing date, a feature called rate lock could be the solution.
A rate lock freezes the interest rate, usually for a fee paid when you agree to the terms of the loan. The lender guarantees with a few exceptions that the mortgage rate offered to a borrower will remain available to that borrower for a stated period.
Rate locks typically last from 30 to 60 days, though they sometimes last days or more. Some lenders do offer a free rate lock for a specified period. After that, however, even those generous lenders may charge fees for extending the lock.
A longer rate lock is more expensive. For example, a borrower who chooses a day lock on a fixed-rate year loan may pay a 4 percent rate and zero points, while a day lock might cost 1 point equal to 1 percent of the loan or a slightly higher rate with a half-point. However, if mortgage rates are expected to rise, you might consider jumping on the lower rate as soon as possible.
It might be helpful to look at rates from the past 60 days to get a sense of how they fluctuate. Some lenders will offer a rate lock with a float-down provision.
This means that if rates fall within a specific period after your loan is approved, you get the lower rate. If rates go up, you get the rate you were quoted. Find out if your locked rate can change in certain circumstances — for example, if mortgage rates drop, or if you change from a year fixed-rate mortgage to an FHA loan. Finally, be sure that your rate lock will be in effect long enough to cover the entire homebuying process.
However, if rates drop dramatically during that period, you might be able to take advantage of new, lower rates with one of the following strategies. You can always walk away before closing day and find a lender offering a better deal. Alternatively, you could stick with the higher rate you locked in and proceed to closing as planned.
Current mortgage rates are at historic lows. That means better deals for first-time home buyers and current homeowners alike. Foroutan recommends that you carefully watch rates and compare your locked-in or pre-locked-in rate to the national average. Verify your new rate Nov 11th, How Soon Can I Refinance?
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