Locking In Your Rate

Using a mortgage calculator such as those typically found on many online websites can help consumers see the importance of locking in their interest rate. If you do not lock in your rate, it may go up before the mortgage loan process is completed. A few percentage points here or there might not seem like a big deal. However, you can use a mortgage calculator to see the long-term consequences of failing to lock in the best rate when you have the chance.

Let’s look at an example. John Smith applies for a mortgage loan in the amount of $100,000, with a term of 30 years. He is quoted an interest rate of 6 percent. He does not enquire about locking in the rate. By the time the mortgage loan process has completed, including all the necessary paperwork and signatures, the lending institution’s rate has gone up to 6.5 percent.

Using a mortgage calculator, John learns that with the original rate of 6 percent his basic monthly payment without taxes and insurance would be around $600. With the new rate of 6.5 percent, the payment would be around $630, or an additional $350 more annually.

Talk to your lender about locking in your rate. Will they do it when the application is filed, or while the loan is processed, or must you wait until after you have been approved? Is there a fee, and what happens to it if the loan fails to close? What happens if the lending institution’s rate goes down rather than up after you have locked in a rate?

Remember, you should not rely solely upon on verbal assurances. Rather, it is well advised that you should get any promise to lock-in a specific rate in written form.