Tips for Locking In the Lowest Mortgage
Rate
Whether you are a first time home buyer, or you have been
purchasing real estate for years, one of your main goals other
than finding the perfect piece of property is to make sure
that your mortgage rate is as low as possible. Anyone
who has had to navigate the tricky waters of the mortgage
markets knows that rates can vary day by day and knowing when
to lock in the rate can save you thousands over the life of
the loan.
When looking for a mortgage one of the most important
things to keep in mind is that competition is key to getting
the lowest rate. Many first time home buyers make the
mistake of not shopping around for a mortgage. They take
the first offer that is presented to them and often end up
with a rate that can be as much as one or two full points
higher than rates for others with a similar financial
background. They think that their real estate agent is
there to help guide them to the best choice - when in reality
they are there to earn their commission. The best advice
for new home buyers is to always make sure that you separate
your financial transaction of buying the house away from the
process of finding a home. The rule of thumb is you
should compare rates from at least three different providers,
more if you have the time.
Even experienced real estate buyers can sometimes end up
over paying their interest. The biggest gotcha is not
locking in your rate when you had to the chance. This is
especially true in times of economic downturn or when there is
uncertainty in the credit markets. Often you have less
than 48 hours to lock in a rate once presented to you by your
lender. If you are uncertain whether rates are going to
go up or down after you lock in a good rule of thumb here is
to watch the 10-year Treasury note. Mortgage rates tend
to follow the yield for the 10-year note more than they do any
other short-term investment, including Fed rate
adjustments.
When you do decide to lock in a rate make sure that you get
it in writing, including a full disclosure of the terms.
Oral agreements won't hold up should you need to pursue legal
action. A written agreement protects both you and the
lender from any miscommunications. You will know exactly
what you are getting on what terms and how long the rate lock
is good for. Typically, you want to aim for 30-60 days
to give you enough time to find the house that is right for
you. However, 30 days is becoming more standard as the
rate markets continue on their rollercoaster ride.
You might also want to consider asking about a float-down
agreement to lock in the rate. Under this agreement the
lender keeps the rate at your locked in value should rates go
higher, but if they decrease they lower the rate to
match. The only drawback to these agreements is they can
be expensive and depending on the size of the mortgage note
the cost to enter into such an agreement may very well offset
any savings you would gain unless the mortgage rate declined
by more than half a point or more in many cases.
Locking in a mortgage rate is the best way to get the
mortgage you want at terms you can agree with. It lets
you focus on finding the perfect home of your dreams instead
of worrying about fluctuating mortgage rates.
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