Massachusetts Real Estate

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When to Lock Your Mortgage Interest Rate

Lock Interest rate todayOne of the considerations when applying for a home loan is when to actually lock the mortgage rate in. Of course those that do not lock right away are gambling with their future loan payment. More often than not the best time to lock a rate is right away.

The three consideration when looking at locking in your interest rate are:

* Interest Rate

* Points

* Length of the lock

Locking in on a rate does not commit the borrower to going through with the loan. The lock of the interest rate simply eliminates the risk of the borrower being open to market fluctuations. As a home buyer when your qualifications are tight the last thing you want to do is find out your rate has increased from 6% to 6 3/8%. An interest rate increase like that could be the difference between eating steak or macaroni and cheese on the weekends.

When a mortgage company or bank permits an extended lock-in period, the borrower will usually see either a higher interest rate or more points associated with the loan. The lender does this to minimize their own exposure to market risk. The borrower pays for the lender to take on this risk in the form of either a higher rate of more points.

As an example, a 30 day rate lock commitment may cost the borrower one half point, while a 60 day rate lock could be double that or one full point. If a borrower needed an extended lock period, but did not want to pay points, the lender could increase the interest rate instead. In this example, typically, a 60-day lock would have a higher interest rate than a 30 day rate lock. A point by the way is 1% of the mortgage amount. So if you are borrowing $200,000, one point would be equal to $2000.00.

Another reason why is it usually best to lock in a mortgage rate right away is that if rates do come down substantially most lenders are willing to renegotiate the rate. Why are lenders willing to do this? That's easy...they do not want to lose your business to someone else!

I know as a Realtor many times I hear my clients saying they heard that the Federal Funds rate just dropped or will be dropping and they assume that 30 year fixed rate mortgages will also be dropping. This could not be further from the truth!                                                                                            

 

There is a big disconnect between the Federal Funds Rate and fixed rate mortgage instruments. In fact many times when the Federal Funds Rate is dropped long term interest rates rise. The Federal Funds Rate is more closely tied to the adjustable rate mortgage. For a complete explanation of how this works see The Federal Funds Rate V.S. Fixed Rate Mortgages.

When you are getting a home loan the other important consideration you need to think about is whether to pay mortgage points or not. For an explanantion of when to pay points for a mortgage loan clink the link.

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The above Real Estate information regarding when to lock your mortgage interest rate was provided by BillRE/MAX Executive Realty Hopkinton MA Gassett, the team leader for the #4 RE/MAX Team in Massachusetts in 2007.

Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 22 Years. Bill's office is conveniently located in the center of Hopkinton MA at 77 Main Street.

I have a passion for Real Estate and love to share my marketing expertise! I would welcome the opportunity to earn your business.

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I service the following towns in Metrowest MA: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Douglas, and Framingham MA.

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30 commentsBill Gassett • October 24 2008 11:21AM

Comments

Excellent post... this is a very tricky subject that some of the greatest minds are still debating!  When should I lock this loan?  Hmmmm... a good Financial Advisor would have an awareness of the market conditions and the ability to make the right decision that benefits their client relationship.

Posted by Earl Johnson about 6 years ago

Bill - This is a ver good rule of thumb for home buyers.  Obviously a good loan officer could help their clients make the best choice, but if you are ok with the current rate---lock it.     

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) about 6 years ago

Bill--Good information...some people just don't get it when it comes to locking a rate.

Posted by Teri Eckholm, Acreage & Lakeshore REALTOR Minneapolis St Paul (REMAX Results) about 6 years ago

Thanks Earl. Over the years I have seen many times where buyers procrastinated on locking their rate and it came back to haunt them.

Erik - One would hope that a loan officer would guide their client prudently.

Teri - There are many times where I have seen a buyer get confused about the mortgage rate lock and their commitment date.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

I know as a Realtor many times I hear my clients saying they heard just heard that the Federal Funds rate just dropped or will be dropping and they assume that 30 year fixed rate mortgages will also be dropping. This could not be further from the truth!

Posted by jackpotcity about 6 years ago

Jackpot you are a funny guy.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Bill, this is good info.  I'm glad you mentioned about the Feds rate not connecting to the mortgage rate. I'd like to reblog this, but see you have disabled that feature!  Just Kidding! :) I'm still watching your other post to see what happens with that one.

Posted by Jen Bowman, Realtor - Anna Maria Island & Bradenton FL (Keller Williams Realty) about 6 years ago

Jen - It is funny how many think the Federal Funds Rate and thirty year fixed rates are connected. You can Re-blog the other post about this subhect:)

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

"More often than not the best time to lock a rate is right away." I always tell my clients to stop wasting so much time and energy on the RATE, juts get it done. And most of the time they actually realize that they have a plate full of other items that need as much and usually more attention! Thanks!

Posted by Russell Lewis, Broker,CLHMS,GRI (Realty Austin, Austin Texas Real Estate) about 6 years ago

Russell - So very true. Sometimes people make things more complicated than they are.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Flamingo

 

Bill - Locking the rate is always a conversation that buyers get confused about...  I'm checking out your link right now.

Posted by Debbie Summers, MoveToLakeMary.com or 407-758-1020 (Charles Rutenberg Realty - Orlando, Florida) about 6 years ago

Bill - To most buyers (and even ourselves sometimes) the mortgage process is a complete mystery.  This post sums it up and makes it more clear in regards to rates.  Good recomendation and a great point that the Fed funds rate does not have much correlation with mortgage rates.

Posted by Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate (Realtor / Owner - RE/MAX Access) about 6 years ago

Good reminder - nobody wants a surprise at the closing table.  If you need certainty or don't want to take the risk, lock now.

Posted by Ryan Shaughnessy, Broker/Attorney - Your Lafayette Square Real Estate Partner (PREA Signature Realty - www.preasignaturerealty.com) about 6 years ago

Debbie - What you will see is one of the greatest misconceptions about the Fed dropping the Federal Funds Rate and long term interest rates.

Chris & Stephanie - Unless you have bought and sold a few times the mortgage process can be a bit daunting. It always make sense to work with a pro.

Ryan - Thanks...Most of the time the risk is not worth it.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Bill this is such good info and a great post I'm going to bookmark it so if anyone asks.. wa - LA - Sorry about our SOX :(  Why must they torture us so.... sigh when are you going to FT LD?

Posted by Shannon Gilmore Western Loudoun Real Estate (Coldwell Banker Premier Properties) about 6 years ago

Bill - Great information for buyers who don't have a clear understanding about the importance of locking in on the rate of their mortgage right away when it could end up costing them far more if they wait.

Posted by Donna Bigda, Greater New Haven CT Real Estate (RE/MAX Alliance) about 6 years ago

Donna - Unless we are in a period of rates dropping on a daily basis, it is not worth the chance to take that kind of risk especially if the buyers qualifications are marginal.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

This is something we need to discuss with our buyers. It amazes me when a buyer hasn't locked and rates rise. What are they waiting for? Most lenders have the option to float down once - or they can make it happen by switching to another underwriter (provided credit and d/p aren't an issue). Knowing this, every buyer should lock asap.

The whole things aboue the fed funds rate - I almost wish the news didn't even report it. It should have a caveat saying, "This will not effect your 30-year mortgage rate."

Posted by Sharon Alters, Your Fleming Island Relocation Agents. (Coldwell Banker Vanguard Realty) about 6 years ago

Bill- great post with great points!  With lenders tightening their guidelines by the day, it is best to lock in a rate ASAP and close ASAP!

Posted by Rick Tourgee, Provincetown and Cape Cod (Robert Paul Properties, Inc.) about 6 years ago

This is important information.  People do not seem to understand loans - witness the current situation.  And, many do believe that the Feds cutting funds should make a big difference in mortgage rates.

 

BTW - Your picture is great.  You look so friendly.

Posted by Christine Donovan, Broker/Attorney 800-610-7253 DRE01267479 - Costa M (Donovan Blatt Realty) about 6 years ago

Sharon - The Federal Funds Rate being tied to the 30 year fixed rate is one of the biggest mortgage misconceptions!

Rick - That is true. There is really is no point in gambling with your interest rate especially if you are marginally qualified.

Christine - Thanks. It is funny that when the media reports on the Federal Funds Rate dropping they do not also inform the public that this most likely will not result in a drop in fixed rates.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Great advice Bill and I do think that alot of buyers AND agents alike do not realize that the mortgage rates are NOT directly connected with the Fed's!  Now IS the time to lock that rate!

Debe in Charlotte

Posted by Debe Maxwell, Charlotte Homes for Sale - Charlotte Neighborhoods (www.AtHomesCharlotte.com | Savvy + Company Real Estate) about 6 years ago

Great post Bill. I thought my mortgage broker was using a crystal ball, but now I know. Thanks for sharing and greetings from Paradise.

Realtor Greg Gorman & Realtor David Burke Present Naples Florida Real Estate 

Posted by Greg Gorman, Naples Florida Real Estate (John R Wood Properties) about 6 years ago

Great Post - most people think it locks the borrower in to using that broker

Posted by Richard Shuman, Realtor, Broker - Preferred Realty of Florida - ww (The Only B.S. I Have is from the University of Massachusetts) about 6 years ago

Thanks Debe..no doubt about it most consumers believe the two rates are connected.

Greg - Thanks for commenting on when to lock your mortgage rate.

Richard - Thanks. That is another mortgage misconception as well.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Bill,

Excellent information.  I am guilty of playing the "wait and see" when it comes to interest rates.  The next time I buy, I wonder if I will follow your advice :)

Have a great day
Leander

Posted by Leander McClain, Cecil & Harford County Realtor about 6 years ago

Leander you are not alone. There are many folks who will gamble with interest rates. Sometimes the gamble is worth it but many times it is not. You always have to follow your instincts on what you feel is the best course of action.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Bill - I love this post! I'm going to ask you directly and outwardly here on your post if I can re-blog this. Good stuff that my clients need to know. On top of that, I have my own personal comments to add also. May I???
BTW, Thank you so much for constantly supporting my blogs on AR.

Posted by Loreena Yeo, RealtorĀ® | Frisco TX Community Ambassador (3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co.) about 6 years ago

Loreena - Thanks for your compliments on when to lock a mortgage rate. I am glad you found this informationworthy to have on your blog.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 6 years ago

Bill - just found this on topix and linked back to this blog - cool! I'm finally finding some time to check out topix. Very interesting site! Have you ever checked out citydata? My sister has been playing around on it and getting some leads.

Posted by Sharon Alters, Your Fleming Island Relocation Agents. (Coldwell Banker Vanguard Realty) about 6 years ago

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