When You Should Lock the Interest Rate

When should you lock the interest rate? Today's winning question by Becky Gregory of Keller Williams Realty DTC addresses that issue. Becky receives a $25 Starbucks card and gets her contact information sent to the 6,600 people on our contact list. We also list her contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Becky's contact info follows:

Becky Gregory
Broker Associate/REALTOR®
Keller Williams Realty DTC
Phone: 303-475-2007
beckygregory@kw.com
www.realestate-denverco.com

Becky's question is: I often get questions regarding locking in a rate, especially when working with a new-build where the closing date is not set in stone when the contract is signed. It could be (and usually is) more than 30 days before the house is complete and good to close. When is the best time to lock in?

Here's the answer: Interest rates can be locked for different periods of time. Most lenders allow rates to be locked in increments of 15 days, for example, 15 days, 30 days, 45 days, and 60 days. The shorter the lock period, the cheaper it is to lock the loan. That means the loan originator gets a bigger rebate from the lender if they lock the rate for 15 days rather than 30 days, 30 days rather than 45 days, and 45 days rather than 60 days.

Also, some lenders will tell borrowers they know that rates are going to go up or down, but they are not telling the truth. No one knows when rates will go up or down. If someone knew where rates were going, they would not be selling mortgages. They would be trading bonds on Wall Street.

When a rate is locked, the person locking the rate (the loan originator) is making a commitment to the lender to deliver a closed loan to them within the rate lock period. If they don’t deliver the loan, they can be fined by the lender (sometimes thousands of dollars).

We always tell borrowers to lock the rate as soon as they know when the deal is going to close. Waiting is just gambling. Yes, the rate may go down if you wait, but it can also go up. If the rate goes up too much, some borrowers may no longer qualify for the loan, and then the deal will have to be cancelled.

In the case of new construction, the rate should be locked as soon as the builder can provide a firm completion date. If the house is not ready to occupy by the time the rate lock expires, the lock can always be extended, but that can get very expensive. The sales contract should state that the builder should pay for the lock extension if they go beyond the firm completion date. If the builder is unwilling to pay for a lock extension, then the date they gave as the firm completion date is probably not very firm at all, and the rate should not be locked until the builder can actually provide a firm completion date.


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By the way, don't forget to refinance your current mortgage. Rates are very, very low right now. Don't miss out! Call us today to get the details for your particular situation.

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