August 5, 2022 - Federal Hill Mortgage

In 2022, we are currently experiencing unusually high mortgage rates. As a result of a multitude of factors, high-interest rates greatly affect buyers in the long term. Several avenues exist to mitigate risk with this jump in high-interest rates such as an interest rate lock. Being nearly impossible to predict, interest rates could rise in favor of the lender or decrease benefiting the borrower, meaning that the risk of an interest rate lock is present for both parties. When working with mortgage brokers in Bethesda, be sure to understand all of the factors that go into a mortgage rate lock and conduct thorough research into whether a rate lock is right for you.

What is a Mortgage Rate Lock?

A mortgage rate lock is when your rate is locked in between the time you make your offer and closing. If you close within the rate lock period, you should incur no charges. A rate lock can secure you a good rate if one to your standards is available at that time, but a rate lock will also prevent you from securing a better one should the rate decrease. Interest rates rapidly fluctuate, therefore, locking in an interest rate can help you better plan for future mortgage costs. A rate lock can be a useful tool or a financial risk, depending on how they change during the course of your mortgage.

Common Questions About Mortgage Rate Locks

What is the Rate Lock Period?

Typically, mortgage lenders in Bethesda will offer a rate lock period between 15 and 60 days. If you require a longer rate lock period, it will end up costing more and only some lenders offer this option. Closing before the rate lock period ends prevents this additional charge.

What is a Float-Down Option?

A float-down option allows borrowers to access lower rates if they decrease during the rate lock period. Float-down options are only offered by some mortgage brokers in Bethesda and may only be applicable if rates drop considerably. There is no way of telling which way rates will change so this option can be an extremely beneficial option or a wasteful expenditure. Deciding on a float-down option should reflect your individual financial situation.

Are Their Fees Associated with a Mortgage Rate Lock?

Depending on the lender, short-term rate locks should be available with no fee if you close within the allotted time. What does come with an additional cost is extending the time that your rate is locked in. Typically, this fee is based on a percent of the loan.

Benefits of a Mortgage Rate Lock

Lower Cost

If you are satisfied with your current mortgage rate, locking in your rate usually comes at no extra cost, depending on the lender.

Risk Reduction

Interest rates are far too common, especially in recent years. Locking in your rate reduces the chances that you will be subject to a jump in interest rates. While a rate lock avoids rate hikes, they also avoid better interest rates if you don’t have float rate provisions in place.

Risks of a Mortgage Rate Lock

Stuck with a Relatively High Rate

The biggest risk of interest rate locks is missing out on lower interest rates, should they decrease. While some options are available for mitigating this risk, not all lenders offer them. Discuss your options with your Bethesda mortgage broker before you finalize any plans to lock a rate.

Fees for Locking Rates

Fees differ between lenders but typically you can expect to pay a rate lock fee for terms longer than 30 days. Rate lock extensions are also usually available, also with a fee attached. These fees can be considerably lower than the overall cost of ending a rate lock term within 30 days.

Rates Dropped After You Locked in Your Rate, Now What?

Mortgage brokers in Betheda using pen to for client to sign document.

Go Over Your Options With Your Lender

If rates decrease well below what you locked in at, don’t panic. The first thing you need to do is to discuss your options with your Bethesda mortgage broker. There are routes you can take to decrease your interest rate such as changing to a shorter loan term but the rates will still be calculated off of the rate that you locked in at. Before you lock into a rate, discuss these potential options with your mortgage broker in order to have a plan in place should this occur.

Allow Your Rate Lock Term to Run Out

This option greatly depends on the seller of the home you are trying to purchase. If they are inclined to delay closing until the rate lock runs out then your broker would take your new rate based on the current one and not the one you locked in at. Allowing your rate lock to run out is tricky to navigate as it greatly depends on the willingness of the seller and the lender to accommodate your requests.

Find a New Lender

If all else fails and the new rate is low enough to justify the costs, switching to a new lender might be your best and only remaining option to avoid your locked-in interest rate. This will inevitably cause a delay in closing and potentially mean you lose out on that particular home. Additionally, all appraisal fees paid to the original lender are lost. While this can be a difficult route to pursue, it can be a saving grace if conducted properly.

Experience the Difference of Working with Expert Mortgage Brokers in Bethesda MD

Locking in your mortgage rate should be a decision based on a variety of factors unique to your individual situation. Because it is nearly impossible to predict the trends of interest rates, deciding to lock in a rate comes with as much risk as it does security. Deciding if you should lock in or not depends on your available options should interest rates decrease. If you are satisfied with your current interest rate, a rate lock would work in your favor. If you are anticipating and hoping that interest rates fall within the time of your mortgage, an adjustable rate might be better for you. It is highly recommended that one becomes familiar with all of their potential options before taking on a locked rate mortgage.

When taking on a mortgage, having a professional broker on your side can prove to be invaluable. The team at Federal Hill mortgage will be by your side through every step of the process and ensure that you are aware of every possible option at your disposal. Apply now to get started!

Jumping into the real estate market for the first time can be a daunting task. Simply looking at the wide variety of available homes for sale shadows the process that goes into mortgaging a home. By making yourself aware of this process and carefully formulating a mortgage plan tailored to your unique situation, you stand to be advantaged among first-time home buyers in MD and will be able to better navigate the current competitive market.

Review Your Financial Situation

Before hopping on the real estate websites and seeing what is available, you need to review your financial situation. Assess your debt such as credit cards and loans. Paying off your debt will grant you a better interest rate and reduce the potential risk for the lender. Checking your credit also allows you to gain an idea of where you stand financially and what types of loans you may qualify for. Once you have gathered all of your necessary financial information, you can properly access all of it to determine your budget for your mortgage and down payment. When considering your budget be sure to include property taxes, homeowners insurance, regular maintenance, and a fund for emergency repairs.

Pre-Approval and Pre-Qualification

Gaining insight into what your home buying costs are going to be is extremely valuable to first-time home buyers in MD. Pre-Qualification allows you to find out how much you may qualify to borrow, what your spending budget is and what your monthly payment could end up being. The pre-qualification process will go over your debt-to-income ratio and your overall financial situation to understand your ability to pay back your mortgage loan. A majority of sellers will not consider an offer without pre-qualification. A pre-approval letter is from a lender which says how much of a mortgage you will qualify for. This will show the seller how much you will be able to offer on a home. A pre-approval works wonders in having a seller take you seriously as it shows your ability to make the purchase and adds a great deal to your appeal as a buyer. Both of these preliminary measures will greatly increase your chances of securing the home of your choice.

Down Payment

The down payment is a major factor in determining your mortgage costs. Generally, the higher downpayment you can afford, the better. Lenders prefer higher down payments as it reduces the risk that they take when lending you money. As a rule of thumb, a 20% down payment will result in lower interest rates and a shorter loan term. If you cannot afford 20%, fear not. Down payment assistance programs and first-time home buyer programs exist to assist buyers with down payments. Be sure to explore all of your options with your mortgage lender to find a program that applies to your situation.

Finding Your New Home

Once you have completed the preliminary steps previously mentioned, it is time to start searching for your new home. By understanding what you can afford and how much you qualified to get loaned, you can refine your choices and find homes that you can afford. First, you need to list your needs and wants. It is much more important for you to find a home that meets your needs rather than your wants. Next, find out what type of home you want. Single-family homes, duplexes, condominiums, and townhomes are available with varying specifications that should be selected based on your personal preference and budget. After the type of home is selected, pick a neighborhood that works for you and meets your criteria. Look for neighborhoods with good schools, low crime rates, low property taxes, and potential for growth and development. This is an important step as it will determine the future value of your home. When looking, be patient and don’t panic buy. Jumping the gun on a home purchase is a common mistake made by first-time home buyers in MD. The market is constantly fluctuating, meaning that the homes currently listed will be sold and replaced with newly listed homes every week.

Making an Offer

Before making an offer, shop around with different mortgage lenders to secure the best rates available. Consider closing costs, points, and lenders’ fees and weigh them against each other to find a mortgage plan that works best for you. Once you have selected a lender and are sure about a home that you have found, you are ready to formulate an offer. The stronger the offer you make, the better chance you have of securing the home. Making a strong offer includes making a larger down payment and limiting contingencies. Making a larger down payment shows the seller that you are ready and able to make the purchase. Limiting contingencies such as insurance, financing approval, and home inspection clears the path for a sale and makes it easier and more attractive for the seller. By making the best offer possible you separate yourself as a serious buyer which is highly important in a competitive market.

Buying Strategies

While we have gone through how to properly prepare to make a first-time home purchase, there still exist several strategies that should be implemented in order to gain an edge in the current competitive market. First comes bidding. In 2021, over half of the homes listed sold for higher than the asking price. If you intend on purchasing the home that you are bidding on, remember that you are bidding against other buyers and not trying to secure a bargain. Next comes cash offers. If you can afford it, nothing beats the attractiveness of a cash offer. This appeals to the seller due to its relative simplicity and quick transaction speed. Letters of intent are away to ensure the seller that you are determined and committed to making the purchase as well as establishing a personal connection with the seller. Gaining a competitive edge over other buyers through these strategies is the best way for first-time home buyers in MD to secure the home that they aspire on living in.

Expert Brokers for First-Time Home Buyers in MD

The current competitive market has put a strain on first-time home buyers in MD, however, by following the aforementioned steps, you greatly increase your chances of securing the home you want for a price you can afford. Even with all of this beneficial information, having a professional mortgage team in your corner is the best thing you can do to increase your likelihood of success. Federal Hill Mortgage’s team of experts is ready to work with you from start to finish to find the perfect mortgage plan that fits your specific needs. Contact us today to get started!