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Finding the lowest available mortgage rate can significantly reduce the lifetime costs of your loan. In fact, reducing your rate by even a few percentage points could save you thousands of dollars long-term.
But with rates constantly fluctuating and often increasing, what can you do to ensure you get the lowest rate possible? One method could be locking in your mortgage rate.
What is a mortgage rate lock?
As the market fluctuates, so do mortgage rates, and even the slightest increase can prove costly. For example, a 1-point rate increase on a $400,000 mortgage could add $4,000 to the costs of your loan.
Lenders use a mortgage rate lock to protect you from these unexpected rate increases.
Rate locks come with an expiration date, usually 30 to 120 days, but it can be extended. Policies vary and fees may apply. Rate locks can also be voided due to changes in your application (e.g., loan amount) and/or finances (e.g., your income).
When should you lock in your rate?
If you find a relatively low rate when rates are consistently trending up, locking your rate can help you save. If rates are trending downward, you can also abstain from locking in your rate and instead float your rate in hopes of getting something better. Some lenders even offer a float-down rate lock that allows you to take advantage of lower rates as they become available.
But timing is everything. If you lock your rate in too early, it can expire before you successfully buy a home. This may result in extension fees or a new, increased mortgage rate.
Locking in your rate also doesn’t mean you must take the loan offer. If a better deal comes along, you still have the option of changing your mind.
Have any questions about your mortgage options? Reach out today for expert help.