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?
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!
