The Smooth Loan Process #2010-08

When Should I Lock My Rate?

For those of you that know me, you know that I have my favorite catch phrases (my friends call them Harold-isms). A lot of them are not appropriate for this blog, but one of my favorites is "lock 'em if you got 'em". The bond and treasury markets have been so volatile for the past couple of years that from one day to the next, there's no way to know what the rates are going to do. True, all of us want the best rate possible. But it's gut wrenching to have had the opportunity to lock at 5.0% but end up with 5.5% because you gambled that the rate would be 4.875%. The advice I give is that if you are happy with the rate on the day you get your purchase offer accepted, lock in and don't look back. In the end, you'll feel better.

What is a rate lock? Think of it as a contract between you and your lender for a certain rate, for a certain period of time at a certain cost. Customarily, rate locks are for 30 calendar days but can range anywhere from 10 to 90 days. The longer the lock period, the higher the cost will be. For example, a rate that costs one point to lock for 30 days could cost 1.5 points to lock for 45 days or going the other way, .5 points to lock for 15 days. If your loan does not close by the expiration of the lock, then you are subject to higher costs if rates worsened since you originally locked. Rate locks are specific to the property and to the borrower. If you had locked in your rate and decided to cancel your purchase contract, your lock would not transfer to the new house.

Also, your lock is only good for the loan program that you have applied for. For example, if you locked your rate for a Conventional loan, but then had to switch your loan to FHA, you would also have to re-lock at the current market conditions. Finally, always have a signed lock in agreement of some kind with your lender. If the rate lock is a contract, wouldn't you want a copy of the contract?

The Smooth Loan Process lesson for today: Lock 'em if you got 'em

Harold Perkins
Galaxy Lending Group
602-595-1233
Harold@HaroldPerkins.com