Thursday, June 29, 2006

Locking Interest Rates

So you’ve picked out your home, submitted your application and you’ve ironed out all the loan details with your mortgage lender. All you are waiting for is the actual loan approval. Well unfortunately, loan approvals usually don’t happen over night. Approvals can take up to, and sometimes beyond, 60 days. It can seem like a long wait, especially when interest rates have a tendency to skyrocket at the worst times, for example, before your loan is approved. Although you may have already discussed an agreeable interest rate with your lender prior to approval, a sudden rise in interest is well out of everyone’s control. This is where locking interest rates becomes a useful tool for borrowers awaiting approval.

Locking interest rates is a way to ensure that your quoted rate will not change anytime before the actual funding comes through. Lenders are happy to ensure a given rate for a period anywhere from 30 to 60 days. This should offer some piece of mind to those of us who are happy with our quoted rate and do not wish for any surprises down the road. However, locking interest rates is a risk for the lender if there should happen to be a sudden increase in rates. This is why they will ask for a nominal fee to provide this service. This is not much to ask, though, considering the amount you will end up spending over a 30 year period with a rate that’s just .5% higher. For example, on a 60-day rate lock, you may end up paying about one-eighth to one-fourth additional points. On a $200,000 mortgage, this comes up to roughly $250 to $500. That’s not much, considering that paying just a .5% ongoing interest rate will cost you over $20,000 more over the life of the 30 year loan.

There are many different programs and services, such as interest rate locking, offered by mortgage brokers and lenders. Their goal is to get you the loan you need, on your terms whenever possible, and to successfully get you into your home without a headache. If you have any questions about mortgage loans or interest rate locks, feel free to contact us for support. We are always happy to extend our service with the hope of helping and providing you with solutions to your mortgage concerns.

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