Locking in Interest Rates
No one has a crystal ball that really works other than in a fantasy world so with that aside locking in an interest rate or also known as your note rate is something that should be discussed in detail with your loan originator.
Several factors should be considered prior to locking in your note rate.
Starting time frame; the window of time in which the lender will allow you to “lock-in”. Each lender has a different start or beginning time frame. Some lenders allow you to lock when as soon as you register you name with them and you know the amount of you loan (that is a brief description) most lenders require you to acknowledge the “LE” (Loan Estimate) and also return the signed “Notice of Intent to proceed” prior to being able to lock in an interest rate.
Closing date; on a purchase this is a little simpler to understand it’s written in the purchase and sales agreement however on a refinance you are truly guessing or have predetermined some expectations of the closing date.
Loan approval with conditions; this is tough to understand for those that are not working in the industry. Once your loan has come out of underwriting your loan originator will receive the approval with conditions. These conditions may range for few to a great many conditions depending on how well the loan originator and processor first submitted the file and how complicated, you the consumer may be with items or issues in your personal and business financial profile. The time frame to complete these items which most often will include an appraisal. Most appraisals take 7 to 10 days.
Underwriting turn times; you should always ask about the mortgage loan process. This includes turn times. A turn time is the time it takes from submitting an item to your loan originator to the loan originator submitting it to the processor who will review it prior to uploading it to the underwriter and where in line will it before the underwriter will have a chance to review your item(s) submitted. This process is generally 24 to 72 hours. Sometimes the items submitted actually create new conditions repeating the process. Not submitting the full documents or having missing items can create aggravation causing this to repeat once again. This will add delays to the process.
Once you have talked to you loan originator and reviewed the conditions and understand the time frames involved with the process. Then you would want to count the days you have remaining to your expected closing date. You should add at least 5 days for a buffer or safety net to this time frame. Once you know the number of days to closing then you can best calculate the lock time frame.
Current market events and conditions; also have an effect on interest rates. Some lenders do live pricing while others set and change pricing 2 or more times a day. Rate pricing; do you know if you need a lender credit for closing cost or do you want or need to buy down the rate to meet debt to income ratio requirements?
Locking in a note rate is not only based on the current interest rate being offered to you that day but is also based on how long that rate will be locked in for. Standard time frames are 15, 30, 45 and 60 day lock time frames. The longer the time frame the higher or more costly the rate will be.
If you guess wrong and something happens within the loan process you will have to pay for a rate lock extension. Unexpected issues may include a bad appraisal, damage to the property you are purchasing or even a hurricane or other severe weather events.
If you choose to lock a rate for 15 days and need to extend the lock time frame you can only extend for another 15 days. If you need more time than another 15 days you will have to extend twice and each time this may cost you the borrower more money. It is most common to do a 30 day lock.
In summary its best to fully review and understand the process, loan and market conditions with your loan originator prior to locking in your rate.
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