|by GRI Instructor Dean C. Piller |
Teaches GRI Course 109 - Residential Real Estate Finance, West Los Angeles College Instructor, Mortgage Broker
View future classes taught by Dean C. Piller
When applying for a real estate loan, borrowers are faced with the dilemma of when is the best time to lock in their loan. The longer the lock period, the higher the interest rate, and conversely, the shorter the lock period, the lower the interest rate. Here are a few facts you should be aware of.
If the borrower locks in an interest rate at the beginning of the loan process for 30 or 45 days and interest rates go up, they will be protected, as long as the loan closes before the lock expires. If the loan is delayed for any reason and cannot close on time, the borrower may be stuck with a higher interest rate.
If the borrower chooses to float their interest rate and lock only when the loan is ready to close, they will get a better interest rate than what is offered for a 30-day lock. With a short-term lock, however, you will be subject to the current rates, and if they are higher, you will have wished you had locked your loan in sooner.
What should you do? Guessing the market is very tricky, and every lender is different. My suggestion is to work with a lender that will allow you to float down your locked interest rate if rates get better without penalty. That way, you can lock in a rate to protect yourself, and if rates go up, you’re OK. If rates go down, the lender will allow you to float down to the better rate. Ask these questions at the beginning of the loan process, not at the closing!