Rate Lock Tips to help you get the best rate

Should you lock or float a mortgage rate?

Mortgage interest rates change daily, much like stock prices, and lacking awareness of this can lead to minor gains or losses. When choosing whether to float or lock an interest rate, take into account factors such as your closing date, upcoming financial reports (like job reports, employment forecasts, and Fed rate changes), how these reports might affect the markets, and your risk tolerance.

A conversation with a professional Loan Officer who knows your personal situation is generally has the best advice.

For home buyers who have signed a purchase agreement, it's advisable to lock in your rate as soon as possible. The sooner you secure your rate, the less you risk losing in the Mortgage Rate game.

If you're refinancing, you can afford to take a bit more of a risk. You're not required to act immediately and can wait to observe the mortgage market trends. However, if the current interest rate appears favorable, it's wise to lock it in. Holding out for a slightly lower rate of 1/8th to 1/4% might only save you an additional $20 or $30 per month, which isn't worth the risk of rates going up! If you're in the mood for risk-taking, try your luck with slots, cards, or dice.

What is a Rate Lock Period?

The lender will usually quote rates along with a rate lock period, usually 15, 45, or 60 days. The loan must close within this period. The longer the rate period, the higher the interest rate.

What is a Rate Lock?

When you "LOCK" your interest rate with your lender, you and the lender agree this is the guaranteed rate you will receive, and that no matter what the markets do before closing, you will not be charged a higher rate if rates go up, and you will not be able to get a lower rate if rates go down. Your rate lock should be in writing.

A common problem when getting a rate quote is receiving quotes from various lenders on different days, which can result in inaccuracies due to daily rate changes. To ensure you have accurate information and avoid selecting the wrong company, it's recommended to collect all quotes as close together as possible.

Many lenders intentionally list lower rates on their websites to encourage you to stop comparing options. This is particularly common with purchase loans, as you probably won't be able to lock in that rate immediately.

What Does It Mean to Float?

Floating your rate implies that while your loan is being processed, the interest rate is not locked in. You are assuming the risk that interest rates will either remain stable or decrease. If rates have been declining, you might consider the possibility that they will be lower by the time your loan closes compared to today. It's important to discuss the option of floating with your Loan Officer, as it can sometimes be a worthwhile risk, but not always.

I received a Rate Quote. What should I do next?

When purchasing a home or refinancing, it's typical to contact several lenders for a rate quote. It's important to know a few things about that quote.  A basic rate quote, or an automated online rate from a website, is not a guaranteed rate. Frequently, it isn't even precise; instead, it is crafted to grab your attention.

The only rate quote that matters is the day you lock.

DID YOU KNOW? You can pick any interest rate or closing cost you want. Just understand selecting one always affects the other. Want lower closing costs? Your interest rate goes up. Want lower interest rate? Your closing costs go up!

Other low rate quote tricks for example is a well known national lender quotes rates that you can't even lock in until AFTER your loan has been fully underwritten, and you are just days from closing. The rates look great, but who cares if you can't lock it?

What factors affect my actual quote and why a generic rate quote is inaccurate

Don’t be fooled by big lender & online ads!

We all know it’s easy to be fooled by low “teaser” rates that are advertised on TV and online. What you see lenders typically advertise is a one size fits all rate with some tiny disclaimer words you can hardly read or with TV and radio ads, they say it so fast you can't make it out.

The truth is-- that rate is the best they have for a perfect borrower and property scenario-- and even if truthful its unlikely to apply to you.  With that in mind, here is a list of unique factors that will affect the interest rate you would receive.

As you can see - it would be impossible for a quick rate quote --or generic online ad to factor in these variables to provide you with accurate info. It takes a loan officer gathering the info below to precisely dial in a rate you would receive.

Home price and loan amount: Your home price minus your down payment will determine how much you’ll borrow which helps determine how much the interest rate

will be.

Down payment: Generally, a higher percentage down payment equals a lower interest rate.

Loan term: Shorter terms (like a 15-year or a 20-year) typically have lower interest rates than a 30-year term.

Interest rate type: Interest rates come in two basic types: fixed and adjustable. Fixed rates do not change over time. Adjustable rates, on the other hand, have an initial fixed period then go up or down based on the market. For example, a 5-year ARM loan will have a fixed-rate for the first 5 years and then the rate will fluctuate from the 6th year onward.

Loan type: Different categories of loans --conventional and government backed loans-- VA, FHA and USDA --have different rates. Conventional loans usually have higher rates than government backed loans, however government backed loans have upfront fees -- and with FHA & USDA --monthly mortgage insurance or loan guarantee fees that make their lower rates less desirable.

Purchase, Refinance or cash out?

With all other factors being equal a purchase loan typically has a better rate followed closely by a no cash out refi --with cash out refinances having higher rates.

Credit score: Based on credit report information and calculated credit scores sourced from the 3 main credit bureaus--Transunion, Equifax, and Experian. Typically, this is called your FICO score and is based on numerous factors which includes your credit history and available credit.

Property type & usage  Primary residence gets the best rate followed by a second/vacation home and then higher still is a rental property.  Condos and manufactured homes typically have higher rates