What is a Pre-emptive Rate Lock, and How Long Should I Wait to Get One?

Industry authorities agree: interest rates are expected to gradually keep climbing, despite recently passing the federal budget deadline. Borrowers that are getting ready to apply for home loans shouldn't wait for a change in the tide, according to a recent article in the New York Times.

It is in your best interest to buy now while rates are relatively low.  According to Keith T. Gumbinger, the vice president of the HSH, "The likelihood is that rates will move higher rather than lower in the coming weeks."  Trying the market is not advisable, especially if it is currently at a place that you can make a transaction work.

Your best option is to establish a pre-emptive rate lock sooner rather than later, to ensure you are getting the best rate.

So, what is a "Pre-emptive Rate Lock"?

Locking in an interest rate on a loan simply means that once you establish it, the rate will not change, regardless of the changes in the market.  Lenders typically will not approve a rate lock until a property has a signed offer, or is under contract.

When should I lock in a rate?

This is entirely up to you, the borrower.  You can lock in the rate towards the beginning or the end of the process.  If, however, you allow the rate to "float" for awhile, hoping for a better rate, it is extremely risky.  If the rates did end up going against you, think about it it would put your purchase in jeopardy.

How long is a lock-in period?

Lock-in periods can last anywhere from 30, 45, or 60 days.   The longer the lock-in period, typically, the more expensive it gets.  How much time is needed varies from borrower to borrower.

What about if the rate "floats-down"?

If the rates do end up "floating-down", most lenders offer a "float-down" provision that will allow borrowers to change their rate if interest rates do, in fact, fall.  This usually comes with an additional up-front fee.  It may be a good idea to choose this option if you are anticipating having a longer lock-in period, and want to hedge your bets.

Have more questions about locking in a rate?  Are you thinking about purchasing a home and want to learn more?  Send me an e-mail or give me a call, and I'll be happy to answer your questions.