Mortgage interest rates have been on the rise lately, but they are still lower than they were a few years ago. If you're thinking of buying a home in the near future, you may be wondering: should you lock in your mortgage rate right now?
Our experts weigh in to help clear up what exactly a mortgage rate lock is, and how you may benefit from it. But remember - if it sounds too good to be true, there's usually a catch.
Interest Rates in 2022
The average 30-year fixed mortgage rate is currently around 6%, but it's projected to increase again by the end of 2022. If you're in the process of buying a home, you may be on the edge of your seat watching the fluctuating rates.
And you're not alone! Mortgage lenders are making their best bets on what the market will do, as well. That's why many are offering mortgage rate locks as a way to entice potential buyers. But what exactly is a mortgage rate lock?
What is A Mortgage Rate Lock and How Does It Work?
A mortgage rate lock is when a lender agrees to give you a certain interest rate on your loan, provided that you close within a certain time frame. This lock protects you from rising rates and gives you peace of mind knowing what your monthly payments will be. Most lenders offer rate locks for 30, 45, or 60 days, but some may offer longer terms.
A rate lock is always a bit of a gamble because if rates drop during your rate lock period, you're already committed to the higher rate. However, forecasts indicate that 30-year fixed rates will remain at 5% or higher through the end of 2022.
How Long Does a Rate Lock Last?
The length of your rate lock will depend on the lender you choose and the market conditions at the time you lock in your rate. Generally, the longer you lock in your rate, the higher the interest rate will be.
And lenders typically won't just allow you to lock in an interest rate until you're actually ready to buy a home. In most cases, this means once you have a signed purchase agreement with the home seller.
Is a Rate Lock Free?
It depends on the mortgage lender. Most mortgage lenders won't charge for a mortgage rate lock or even for a rate extension. However, for those that do, it's typically about 0.25% to 0.50% of the total loan amount for a rate lock. For the extension, you're looking at another 0.06% to 0.375%.
This fee can either be paid upfront (and is non-refundable if you decide not to move forward with the loan), or it is baked into the terms of the loan.
Can Your Rate Lock Expire Before You Close On Your Home?
Yes, sometimes your closing date may be delayed past your rate lock period. When this happens, you can request a rate lock extension from your lender, otherwise, you'll be subject to current rates.
Alternatively, if interest rates fall during your lock period, you may be able to renegotiate your rate with your lender with a float-down option.
What is a Float Down Option?
A float-down option allows borrowers to take advantage of lower interest rates even when they've already locked in a mortgage rate. Lenders have rules regarding how and when you can use the option to "float" the rate down to a lower interest rate.
Pros and Cons of Mortgage Rate Locks
Now that you know how a mortgage rate lock works, let's take a look at the pros and cons:
Pros of Locking Your Mortgage Rate
-You're protected from rising interest rates
-You'll know exactly what your monthly payment will be
Cons of Locking Your Mortgage Rate
-You may end up paying a higher interest rate if mortgage rates fall after you lock in
-You may have to pay a fee to lock in your rate
What If Mortgage Rates Drop After You Lock?
If mortgage rates drop after you lock in your rate, you may be able to renegotiate your rate with your lender. However, you'll likely have to pay a fee to do so. Experts recommend for this reason that you only lock in a mortgage rate if you're under contract or expect to close within 30 to 45 days.
Finding a Lender You Can Trust
When it comes to locking in your mortgage rate, it's important to find a lender you can trust. Research different lenders and compare their interest rates, fees, and terms before making a decision. You want a lender who will work with you if your rate lock expires, if you want to pursue a float-down option, or if other circumstances arise.
And when it comes to finding a lender you can trust, look no further than Texas United Mortgage. We're a team of experienced, trustworthy mortgage lenders, and we're here to help you every step of the way.
Should You Lock in Your Mortgage Rate Right Now?
While falling interest rates seem unlikely, current rates are still relatively low. If you're already in the process of buying a home, you may be wondering if you should lock in your mortgage rate right now to save money on your loan rate.
So, should you lock in your mortgage rate now? It depends on your circumstances and the market conditions at the time you lock in your rate. For example, if you're looking at an expensive rate lock option, it might not actually save you money if rates aren't rising particularly quickly.
Fear over rising interest rates has led to more aggressive rate locking, especially by unsavory lenders. These lenders charge a rate lock fee and use scare tactics.
Keep an eye out for lenders advertising an extended rate lock period (like 75 days) and up-front or rate lock extension fees. Most mortgage lenders offer to lock a rate for free for 30 days. That's why it's so important to check with your lender and ask about all fees and terms before you sign up for an interest rate lock.
If you're ready to start shopping for a home, we can help. We have a team of experienced mortgage loan officers who can answer any questions you have about mortgage rates and help you find the best loan for your needs. Contact Texas United Mortgage today to get started!