Big news this week… We went ahead and locked in our mortgage interest rate. My husband called the lender on Wednesday, and we’ve since faxed back the agreement. We’re locking in our 30 year fixed rate mortgage at a 5% interest rate with a 1.017% origination fee.
To be honest, I’ve been anxiously watching our lender’s site and counting the days until our closing date. I was worried that mortgage rates would go up before we locked. Fortunately, they didn’t, so we have one less thing to stress over about.
What is an interest rate lock?
A rate lock is an agreement with your lender to fix your interest for a limited time period. Locking in your rate keeps the terms of your agreement consistent prior to close. Your lender won’t increase your interest rate for a limited period of time, though they also won’t decrease it if rates fall.
While I’ve read that some lenders charge a fee locking your rate, we found that pretty much everyone offered to lock our rate for free. If your lender tries to charge a fee, ask if they’ll waive it. And, as always, the terms of your should get the terms of your agreement in writing.
Why lock your interest rate?
Interest rates change constantly, so it’s possible that the rate you were first quoted will rise (or fall) between prior to closing. If rates increase and you haven’t locked, your mortgage payment will increase — perhaps to the point where you can no longer afford the payments.
On the flip side, you may have to settle for the locked rate even if the interest rates go down. Be aware, though, that some lenders offer the option to “float down” your rate if it drops significantly. In our case, our lender will split the difference if the interest rate drops to 4.5% or lower prior to closing.
When should you lock your interest rate?
There’s no concrete answer to this question. If you think that interest rates will rise in the near future, you should lock your rate. In our case, the interest rate was 5.25% when we first applied for our mortgage. It then went up a bit in the summer, but it’s now down to 5% for our FHA loan.
In 2008, the average rate was 6.1% for a 30-year fixed rate mortgage. Since no one can predict the future, you’ll have to weigh your options carefully before you decide. You can compare current mortgage rates here.
Personally, I can’t wait for this whole process to be over. I’ve never read so many forms and studied so many educational guides before. Did you feel like this as you were going through the home buying process? Do you have a rate-locking stories to share?