Locking in Your Mortgage Rate 101
You probably know by now that you can’t just GET a mortgage. If you think about it, it makes sense. It would be crazy to lend a friend $200,000 when they have a bad track record of paying you back. Well you’re not that guy. and you think you’re qualified enough to start shopping around. After all, you hate throwing money to your renter knowing that they secure that equity, not you. You might be ready to take on a mortgage of your own. Congratulations!
When shopping around for a mortgage through different lenders, it’s important to look for the best rate when securing your loan. The best rate, however, is not the only consideration you should keep in mind.
Can they work with my credit score, my schedule, my home ?
Is the lender going to give me the best mortgage product (30-year fixed. 7-year ARM, etc.)? Part of that mortgage product is the rate associated with it. You want a great rate and your lender understands that. That’s why it’s important to lock in a mortgage rates while they’re still low.
The Importance of Locking In
Once you’ve chosen a lender and your mortgage product is decided, you need to lock into an interest rate based on the market at that particular time. It’s important to lock in your rate because the market is always changing and rates can easily go up. It’s a guessing game that most people don’t want to play.
Your rate lock is a binding agreement, especially after you make a deposit to secure that rate. Sometimes, borrowers see a falling interest rate based on the updated market trend and walk away from their locked-in rate—risky move. This is a dangerous gamble because it is hard to predict the market. Just when you think rates are going down, they could shoot up over night. That’s why it’s very important to lock in rates right away.
Here at Quicken Loans. we do everything we can to secure the low rate on your loan. We even offer extensions when paperwork takes longer than expected or other problems come up.
Useful Information on Securing a Locked Rate Through Lenders
Based on advertisements
Mortgage rates change daily. This guide can help you predict rates. What you see on TV might be an outdated ad by the time you give them a call.
Additionally, you might not qualify for specific programs and qualify for others, depending on your credit score and other factors. By having a quote tailored to you (which often means pulling your credit and looking over tax information), you can be sure it more closely matches the rate you’ll receive.
Understand the lingo
Understand that a “rate quote” is just a quote—nothing is promised.
- A rate lock is a signed agreement with your specific interest rate.
- A rate cap
means your rate lock could be anywhere up to that cap amount, but not above. Find a lender that will secure your rate lock and not delay the process. You should be in-the-know about every step of your loan.
When you secure a rate, know how long that lock on the rate lasts. Some are only good for 7 days, 14 days, or more. The rate lock should reflect how long it will take to close the loan, so 7 days will probably not be enough time. Sometimes you have to pay for a longer rate lock. Quicken Loans offers 30-day rate locks with the possibility of a free extension. Most clients get 15 days more for free, offering more time to process extensive loans.
Rate locks can expire depending on your agreement, so when a lender asks for documents, be ready to deliver them right away. This will expedite the entire process and ensure you keep your rate to closing. Many lenders charge a fee when the rate lock expires and the loan isn’t closed.
Understanding Mortgage Points
Your locked in interest rate isn’t the only variable to worry about. There are also mortgage points. Mortgage points are essentially pre-paid interest. Sure, paying 3% interest is awesome, but you might have to pay 6 points to get that quote, costing quite a bit more than what it looks like. One point is equal to one percent of the loan value. One point on a $100,000 loan equals $1,000. On a $150,000 loan, a point equals $1,500.
Let’s rewind a minute. What are points, anyway?
There are two kinds of points associated with loans: origination points and discount points.
These are ultimately paid by you to the lender for closing your loan and getting you money. One origination point is normal in the mortgage industry.
Discount points are pretty cool and let you “negotiate” the interest on your loan before it closes. I might be able to pay a half point now in order to save on a lot of interest down the road, which lowers your mortgage payment and the entire amount you pay altogether.
For discount points, lenders can show the breakdown of payments depending on the points paid for the cost of future savings. You’ll pay more now to save big later.
It’s important to know that one discount point is equal to one origination point. If I’m charging two points to you, it doesn’t matter what kind of point it is.
Now that you know about rates and points, you know how it can affect your money at the end of the day and will be more prepared for the loan process.
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