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Locking your Rate

An interest rate is a volatile figure by nature. Interest is determined by yield, which is ultimately determined by market price. As the market shifts for better and worse, the interest rates offered move up and down. Locking in your interest rate is always a good idea because it essentially guarantees your rat e of interest for a specific number of days. We will discuss the important things to know about interest rates and locking. These locking rules apply to all home loan programs.

First it is important to understand interest rates are typically determined by a secondary market. If you are interested in learning more about the secondary market and mortgage backed securities I suggest you visit the website mortgage news daily where you will find all the information you could want on mortgage backed securities and the MBS market. In the meantime what you need to understand is rates and the pricing associated with rates change as the market moves. The danger of this fluctuation can be dramatic. In a single day a market could turn and move rates a half even a full point. Although this type of shift is generally rare, the market movement we do see can result in a higher or lower final cost of closing.

Although tracking the secondary market can afford you some safety when floating an interest rate, a final measure of safety is the rate lock. Rate locks come in different forms, their primary differences being length of time, and final cost associated with the rate. The longer the lock period the high the cost associated with the desired rate of interest for a simple reason; the bank is taking more risk guaranteeing the rate for a longer period of time so they charge a premium for the long lock period.

A typical rate lock is 30 days, the time it should take to close escrow, however longer periods are offered as well, 45 days, even 60 day locks are sometimes offered . Shorter periods are also available, 15 day, or 12 day lock periods afford better pricing than their longer 30 day counterparts. If a favorable market floating into these shorter periods can save you money at closing; but know the risk, should the market turn quickly you should be prepared to cut your losses and lock .

If your closing requires a specific interest rate, and that rate and the pricing is currently available in a lock that extends past closing, it is highly advisable to lock in the interest rate. Being forced out of contract because of a rising market is a terrible tragedy, but it happens. Locking will allow you to avoid this type of misfortune because you the rate you need to qualify for is secured.

The question many raise at this point in time is what if you have your rate locked and the market improves. Most lenders offer renegotiation policies which we pay close attention to. Should the market improve enough to warrant a rate renegotiation; we always exercise renegotiation on behalf of our clients, ensuring market advantage and the most favorable rate and pricing.

Should you for some reason find yourself unable to close in the lock period, lock extensions do become available. The cost of these extensions varies between different lenders. Generally speaking they should be avoided whenever possible.

Discussing your rate lock options early in the process with your loan officer, and objectively evaluating your level of risk exposure to the market is something that should be an early conversation.

We actively inform our clients of market changes giving them the power to determine when the right time to lock their loan is. If you have interest rate questions about locking we welcome you to give us a call or email us.

831.325.6959

California Bureau of Real Estate License 01792241
NMLS License 523235


1649 Calavo Rd. Fallbrook, CA 92028
831.325.6959 Phone
866.321.5467 Fax
email@culturemortgage.com

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