So you've been shopping in the housing market for a while and you finally see a home you like. You go to the lender who has pre-approved you only to hear the shocking news that interest rate has gone up since last time you saw each other. It sounds like the market has changed since you last visited, driving interest rates up! So how do you beat the market? Well, that sounds a little too ambitious. Let's try this: how do you find peace with the ever-changing market? Lock in the rate!
There are different types of lock-ins. It is possible to have both interest rate and points locked in; it is possible to have floating points; it is also possible to have floating interest rate and floating points so you can lock them in anytime during the lock period usually up to five days before settlement. Sometimes floating down is available too.
Which option works best for you is dependent on the market trends as well as what your lender is able to offer. In any case, as long as there is an agreement between you and your lender, you should make it in writing. Remember this shouldn't be just an oral commitment. This is a legal document.
You and your lender will also agree on a period of time for which the lock-in is effective. You should make sure that the lock is valid for long enough for you to close on a home - and be conservative, since closing a home sometimes gets delayed! Do some research beforehand to figure out how long it generally takes to process a loan in your area and try to settle the loan before the lock expires. Ask your lender how long it takes her or him on average to close a loan.
Spoiler alert: Some lenders might charge you a fee to lock-in your rate, so be aware! Lock-in fees vary from lender to lender and situation to situation. Usually lenders don't charge for shorter locks (up to 30 days), but they might ask to if you ask for longer ones. You want to convince yourself that the fee is worthy of the lower interest rate. You can never be 100 percent sure, though, just as we can't guarantee that lock-in is a good choice for you. After all, no one is able to predict the market, especially the volatile one we are in. You are expected to stick to your end of the bargain even though your locked-in rate may end up higher than the market rate when you are ready to settle.
There are risks associated with both locking in and not locking in a rate. We hope you get the best deal you can. Most importantly, keep yourself legally protected. Work closely with your realtor and City First Homes to try to come up with a situation that works for you!
- Anlan Zhang
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