Lock In Mortgage Rate
What’s the difference? Well if you’ve been “quoted” a certain mortgage rate during your application process, this quote is usually subject to change – Which means that the mortgage rate you were quoted before you applied can legally be made higher by the time the mortgage actually goes through.
This can end up costing you a lot more than you bargained for initially and can come as a bit of a nasty surprise!
However, if you get a lock in mortgage rate from your lender, this is a legally binding promise that you will be getting that rate for your mortgage once the deal has been closed. (The rate lock in is only valid for the period of time it is promised for though)
Here are 7 tips to ensure you can take maximum advantage of a lock in mortgage rate
1) Stick to the time-frame – The simplest way to make a lock in mortgage rate work is to make sure you adhere to the time period that your lender has given you for the lock in rate to stay valid! Simple but surprising how many people mess this step up!
2) Get a realistic lock-in period from your lender – It’s no good if your lender gives you 14 days before your lock in mortgage rate expires if you know it will take you 3 weeks or more to get your loan/purchase your new property etc
3) Make sure everything is in place! – There is nothing worse than having a time-frame to adhere to and then realizing that some unforseen obstacles have crept up. Ensure all documents are in place, property issues have been 100% settled etc.
4) Is a lock in the best option? – If you think interest rates are on the rise, then it may be a good idea to get a lock in. However, if you suspect the rates might fall then you could be stuck with a higher rate than you could have been offered. This is a catch 22 situation because it is difficult to predict interest rates!
5) Can your lender give you a lower rate option? – Following on from the above tip, ask your lender if they may give you a “float down” option which means that if the interest rates fall during your locked in rate period, your lender can offer you the new, lower rate.
6) Is your lender giving you a “rate cap” clause? – A rate cap means that the lender may still charge you a higher rate even if you have got an agreement for a lock in mortgage rate. They may typically cap it at 0.25%-0.5% higher than your lock in rate. Make sure you read over everything!
7) Get the lock in mortgage rate IN WRITING – Don’t give shady lenders a chance to worm out of a “verbal agreement”! Remember the saying, ‘a verbal agreement isn’t worth the paper it’s printed on’. Be vigilant and insist that the lock in rate is confirmed in writing.
