Miscellaneous Mortgage Refinancing Tips: When You Should Lock In an Interest Rate

Home Mortgage Refinancing: An Overview of Locking in Interest

When locking in your rate, timing is everything. It’s such an important part of the mortgage and refinancing process that borrowers who forget to lock in—or their brokers fail on purpose to mention it—can pay needless amounts of money every month. This happens when the rate goes up and the broker hands them papers at the closing with the new rate, saying, “Well, you didn’t lock your rate. Here’s the new one. Take it or leave it.” After all the fees the client has paid, sometimes for unnecessary things, she signs the papers and the lender walks out with stuffed pockets.

Two Sides to the Interest Rate

Remember that there are two sides to the interest rate—yours and the lender’s. Also keep in mind that it’s a bet, much like life insurance. You are betting the interest rate will change, and the lender appears to bet the interest rate will stay the same. However, keep in mind that the rate changes daily, sometimes hourly. Your bet is almost assuredly good, so the lender has to find ways to talk you out of it.

You Need to Remember the Ins and Outs of Locking in Interest Rates

So your lender may forget to tell you that you should lock in your rate, or tell you it’s locked when it isn’t. If you have given your representatives every chance and they fail to mention it, place one red flag on their side of the interest rate negotiation. Then mention it yourself. You will get some various responses, but if they say you shouldn’t or can’t, it’s time to find another lender. If you get a lock, get it in writing and signed by the lender!

Two Choices When Locking in an Interest Rate on Home Mortgage Refinancing

If the lender agrees to lock in the rate, you have two choices. You can lock it as it is and bet that it won’t go down. To make this bet intelligently, you should keep your finger on the pulse of the economic world. Watch the news, read about the rate trends, and see if there are any announcements from the government. Try to plan your lock around those factors. If that’s not possible, consider a different way of dealing with your lock.

Some are able to get a lender to agree to a rate lock with changes that would only benefit the borrower. This amounts to a lock-in with a stipulation that if the rates go above that number, the borrower will not pay any more interest. If the rate drops, the borrower would pay the lower rate. If you have excellent credit, timely payments, and a good history, a lender should be willing to make this agreement with you. If not, shop around a little more. Your reputation and hard work on keeping your credit score high amounts to less risk for the lender. That should pay off in some way for you.