What's the Key to Locking In?
1998 when mortgage interest rates hit rock bottom, no one had more reason to celebrate
than the millions of consumers who locked-in the sweetest interest rate since
1968. But since that time, interest rates have taken consumers on a roller coaster
ride. Although the peaks and valleys have not been enormous, rates spiked up past
7 percent, creating uncertainty for bargain-hungry home buyers trying to decide
whether to lock their interest rate or "float" with the market. How do you know
when to lock-in? It's not an easy question, says Jim DeBoth of The Journal Newspapers.
Locks are available for varying time spans, from 10 days to 120 days.
The average length is 30 days which is about how long it takes a loan officer
to process a loan after receiving documentation. The lock-in can include just
the interest rate or both points and interest rate. In a fluctuating market you'll
need to decide if you're the adventurous type. If current rates are high and expected
to drop, you could just wait and "float" with the market until locking in at the
time of settlement.
So scrutinize the market and decide if rates are fluctuating
fast enough to lock-in or not. When dealing with construction delays or the need
to sell their existing home, home buyers need to consider the fluctuations that
could occur during a long wait. Longer locks of 60 days or more make sense if
you're satisfied with the current rate and don't want to gamble but typically,
the longer the lock, the higher the rate and points you'll be charged. Intense
competition has led loan providers to be more creative in the deals they offer.
Some lenders are offering a "float-down" option that lets the rate drop if it
goes below the lock-in rate. Beware of fees, however, that might make this deal
less than attractive. Ask for the exact fees and interest rates offered.
have changed from the days of the locally owned and managed neighborhood bank.
You're no longer dealing with just the bank officer--he or she is probably answerable
to another central bank official in a distant city. Accordingly, what you see
is frequently what you get. But don't let that stop you from bargaining or threatening
to take your business elsewhere. Shop around for the best rate and lock-in terms
Whatever you do, get it in writing. Don't risk any nasty surprises
at the settlement table. If there's any dispute about the rate or points, you'll
be stuck without a written agreement. Remember to get your personal financial
paperwork organized as soon as possible, especially if rates are currently good.
Most borrowers must provide documentation within a week of locking in a rate.
You'll need pay stubs, W-2s, or other proof of income; bank account numbers; bank
statements and your branch address; all loan and credit card numbers; names and
addresses of creditors; and evidence such as cancelled checks of your other mortgage
or rental payments.