The million dollar question: When is the best time to lock my interest rate? The obvious answer: When home loan rates are at their lowest. The problem is that loan officers don’t really have a crystal ball. With that being said, some home loan professionals utilize financial market indicators that can help them advise home buyers on whether to lock or float their interest rate. These lock periods vary from lender to lender, but I would venture to guess that the most commonly used lock period is a 30 day lock. Depending on your mortgage professional, mortgage company and their underwriting process, a 30 day lock period should be more than enough time to fund your loan before your lock expires.
The time period that your interest rate is not “Locked”, is known as a “Float”. Historically, floating a rate lock was a normal function in the home loan process. Interest Rates were steady, and the float feature could have meant the possibility for a better interest rates. These days, that’s not the case. Mortgage rates are as active as some of the scariest roller coasters, and volatility is the best descriptor of the mortgage markets. Rates go up and down daily, and sometimes hourly. It’s not unusual to see lenders reprice interest rates for the better, or for the worse, a couple times a day. Unfortunately, mid-day reprices are more often for the worse. Everybody wants the lowest rate possible, right? Of course we do! If a borrower floats too long for a better interest rate, they could end up getting burned!
Much like the stock market; when you lock in your interest rate, and rates go up, you’re already locked and protected. However, what happens if you lock in and the market improves before your closing? Well, generally speaking, your locked in at that rate. Borrowers can often times feel like they got the short end of the stick.
So how do you get the best of both worlds? The simple answer is a Float Down Feature. How this program works, is that a borrower pays a small up-front fee at the time of locking their interest rate. The borrower is now locked in against any rising interest rates. But, if mortgage rates were to actually drop during the lock period, the borrower gets the option to “float down” to the current lower rate. This Float Down Feature has been dubbed the next biggest no-brainer in mortgage history. Oh yeah, the best part is that the small up-front fee usually gets refunded back to the borrower at closing.
So, how can you as a borrower make sure that you are getting the best interest rate? Simply ask your lender if they have a float down policy. If your lender doesn’t know what that means, simply ask them what happens if rates go down after you lock? If they tell you, “you’re locked” and that’s it… find another lender.
For more information on using the Float Down Feature as a tool for your locking strategy, please contact a member of The Veracity Team