Whether you are purchasing your first home or refinancing a current home, you will likely be interested in knowing when you can take advantage of low rates of interest.
When your mortgage loan application is imminent (meaning you are just about ready to make an offer on a home or actually refinance), then you must play the “When can I get the best interest rate?” game. It can be frustrating trying to find what you believe to be the best possible rate, but one option available to you, especially if you believe interest rates may rise at any moment, is a lock-in.
What Does it Mean to Lock in Your Mortgage Rate?
When you lock in a mortgage interest rate, you get the lender to agree to “hold” the current interest rate (and sometimes points) for you until your loan paperwork goes through. This protects you from interim rises in interest rates, although it doesn’t necessarily help you if interest rates go down.
The best time to lock in low mortgage loan rates is when homes can be purchased at good prices and when interest rates are at their lowest. However, mortgage loan rates can dip and rise at any time, so the optimal point at which to lock in a rate is really a guessing game.
What Major Factors Determine Your Home Mortgage Interest Rate?
Applying for a mortgage loan when interest rates are low is only one part of the equation that determines the actual interest rate you are offered. The following three items are also important for obtaining a low mortgage loan rate:
- A good credit score.
- A low debt-to-income ratio.
- A sizable down payment.
Individuals or couples who meet those criteria will have an easier time qualifying for low mortgage loan rates; those with unstable employment or credit history may experience roadblocks in the process.
Where to Get More Information about Mortgage Interest Rates
A good place to start your research on mortgage lock ins is the Federal Reserve. In A Consumer’s Guide to Mortgage Lock-Ins, the government explains if you should expect to be charged for a lock in, what options are available for setting mortgage terms, how long lock ins are valid, and how to speed up the loan approval process.
Bankrate.com is a helpful resource for would-be home buyers and current homeowners looking to refinance. On the site, consumers can do the following:
- Compare local mortgage rates
- Find mortgage calculators
- Learn the basics about buying a house
- Find recent mortgage news
Whether a homeowner has a fixed or variable mortgage loan rate, refinancing to a lower rate and/or a different type of loan during periods of favorable interest rates is sometimes an option. Individuals interested in refinancing mortgage loan rates may be interested in the Motley Fool’s mortgage refinance calculator.
Sources:
- How Do I Find the Best Mortgage Rate? by Jessica Seubert. Retrieved from bankrate.com on August 31, 2011.
- How Long Will Low Mortgage Rates Last? by Chris Kissell. Retrieved from bankrate.com on August 31, 2011.
- A Consumer’s Guide to Mortgage Lock-Ins. Retrieved from federalreserve.gov on August 31, 2011.
Lena Gott - Lena Gott is a Certified Public Accountant who gives practical financial advice to her readers.
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