Title:
Locking In The
Interest Rate On Your Mortgage
Word Count:
430
Summary:
Many people
purchasing homes are surprised to learn how quickly interest rates can change.
This brings up the subject of locking in the interest rate on your loan.
Keywords:
mortgage,
interest rate, application, lender, home loan, mortages, home loans, locking
in,
Article Body:
Many people
purchasing homes are surprised to learn how quickly interest rates can change.
This brings up the subject of locking in the interest rate on your loan.
Locking In The Interest Rate On Your Mortgage
Contrary to popular opinion, interest rates for mortgage loans are not set by
the Federal Reserve Bank. This assumption, however, is understandable given the
uproar one tends to see in the media every time the Chairman of the Federal
Reserve makes any mention whatsoever about raising or lower rates. Of course,
you should understand he is discussing the rate that will be charged by banks
to borrow from other banks. Interest rates on mortgages, on the other hand, are
set by the bond markets among other indicators.
Since bond markets move every business day, the mortgage rates move in a
corresponding matter. Even a tiny change can impact how much or little money a
lender will recover given an assumed payback of a 30-year loan. To protect
yourself from these fluctuations, you must understand how to lock in the
interest rate on your loan.
A mortgage cannot be finalized until the interest rate is locked. If you don’t
address the issue with the lender, the rate can move up or down every day from
application to the actual funding of the loan. This can literally be two or
three months if you are getting pre-approved before making an offer on a home.
This kind of volatility is dangerous, particularly if you are pushing the
limits of your cash flow in buying a home. If rates increase half a percent
while you are shopping, you may be unable to make the monthly payments when you
finally buy the property of your dreams!
Locking in a loan is all about points and the length of the lock. These issues
are negotiable with the lender, to wit, there is no legally required standard.
To lock in a rate, you often must agree to pay a percentage of points. The
longer you want to lock in the rate, the more you pay. For a 30 day period, you
can expect to pay a quarter to a half of a point. For a longer period, expect
to pay half to a full point. A point is one percent of the total loan. If a
lender tries to charge you more, take your loan elsewhere or get a mortgage
broker involved.
Fluctuating interest rates are dangerous since they can impact your month
payments. Locking in your rate gives you a definitive figure to work with when
buying your dream home.