How to Lock in the Best Mortgage Rate You Can
When you’re ready to buy a home, your first concern may be whether or not you can get a mortgage at all. When you do find a willing lender, the next question is whether or not they will offer you an affordable mortgage rate.
If you do get a mortgage rate you like, you may want to lock it in as soon as possible. So how do you lock in a mortgage rate, and what are the advantages and disadvantages to doing so? Read on to learn more now.
What Does It Mean to Lock in a Mortgage Rate?
Before you lock in your best mortgage rate, it’s important that you understand what “locking in a mortgage rate” actually means. As you may be aware, mortgage rates can fluctuate quite frequently, and it can be hard to plan your budget if you’re not sure what your interest payments are going to look like.
A mortgage rate lock is a promise by your lender to give you a certain interest rate, typically from the time your loan is approved until the closing.
What this means is that no matter what happens to interest rates in general, your rate will be whatever you agreed to at the time it was locked in, assuming other aspects of your application remain the same. One of the many benefits of locking in your rate is that it enables you to plan for the future. You won’t see a surprise jump in your mortgage rate that you have to deal with.
The downside, of course, is that if mortgage rates drop, then you’re stuck with the number that you’ve locked in.
How to Lock in the Best Rate
There’s no way to guarantee that the mortgage rate you lock in will be the best possible rate for you. There is always the chance that mortgage rates could drop between the time you lock in, and the time when you close. However, there are a few things you can do to protect yourself.
First, keep an eye on mortgage rate trends. Even before you approach a lender, you may want to keep an eye on mortgage rates for a few weeks or months. If they seem to be going down, then you may want to hold off on locking in a rate for a short while. But if the rates are staying the same or rising, then you should be more willing to lock in.
That’s assuming, of course, that the current rate is one you are comfortable with. It does you no good to lock in a rate if that rate is one you will struggle to pay. If mortgage rates are too high, you might want to hold off on seeking a loan.
Use the intervening time to pay down credit cards and take other steps to improve your credit rating, which will increase your chances to get the best mortgage rate.
Asking Your Lender About a Float-Down
You may also want to ask your lender about a “float down.” A “float down” is a lock-in mortgage rate feature that allows you a one-time option to take a lower rate if one becomes available during the lock-in period. Not all lenders offer float downs on all mortgage loans, and there may be a fee for a float down, but it could be worth it for your peace of mind.
