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Loan Rate Locks in Times of Rate Fluctuation

The practice of entering into a mortgage loan rate lock agreement with a lender is one of getting a Mortgage Loan Rate Lockpromised interest rate at closing, even if rates have risen in the interim. 

Your first concern is to make sure that you don't cut your timeline too short.  Sometimes things come up in the closing process related to title issues, surveys, inspections and repairs.  Any delays can result in losing your mortgage rate lock because you pass the original deadline.  This is particularly important in today's market, when buying foreclosures is much more common.  Now you have lenders on both ends, with one being the seller.  Procedures and red tape can delay a closing from the seller's side, even if your lender  and real estate agent are right on track.

Another common issue in today's fluctuating markets is the drop in mortgage rates after locking.  Rates have been dancing around a lot, and some buyers are finding that rates actually have gone down, such that they are locked in at a rate higher than they could get if they started over.  Some are tempted to break from the existing lender, walking away from the loan, and starting the process again with another lender.  Exercise care in this situation, as there are a number of issues which can actually cost you more than you'll save.  If the rate isn't significantly lower, new appraisals and other costs to complete things you've already paid for once can actually wipe out years of savings.  This is especially true when few homeowners today remain in a home more than 8 years on average.  There could also be contractual penalties or other costs in leaving a lender after a lock.

Working with a broker can make this stressful situation less stressful.  Should rates drop drastically enough that the benefit exceeds the costs, then a broker can move your file to a different lender where you can lock at the lower rate.  Just remember in doing so, you might be paying for a new appraisal.  And you will also have to be respectful of your close of escrow date as you may incur a per diem cost for not closing on time.

We're in interesting times, and many can remember when 8% rates were really great.  So, discuss your mortgage rate lock options, understand them, and enjoy your new home with the assurance that you've made great long term decisions.

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