Can You Lock in an Interest Rate?

Locking in an interest rate isn't brain science, but the terms and conditions can get quite complicated. Thus, if you are new to the mortgage game, it's important to work with both your lender and your accountant to create a budget and payment schedule that's not too burdensome. Before locking in a rate, figure out your long-term goals and obligations, and work backwards from what you can afford.

The process is as follows. Once you've decided that the current interest rate in your area is attractive, discuss with your lender or lenders about their conditions for cementing a rate. Next, learn about any fees or penalties you might have to pay. Often times, lenders are requiring that borrowers put down what are known as ?points? to secure the loan. A point is 1/100th of your total loan.

Believe it or not, locking in at a rate may actually cause your rate to change. This is because lenders often charge premiums for the convenience and stability of locking in. Finally, find out the term of the lock in. This period of time should be stipulated well in advance, so that you and the lender can maneuver appropriately towards closing.

Bear in mind that lenders may have different rules on locking. Some lenders may require that you bid on a home before agreeing to lock in. Others will ask that you appraise your potential house prior to an interest rate lock in.

Is locking in always the right choice? If you are budgeting for extreme stability, and the economy is flush with funds, locking in may be a smart choice. However, if you can roll with slight changes in the interest rates, you might want to avoid locking in to skip the hassle of the paperwork. Similarly, if national interest rates seem to have plateaued or seem to be dropping, you may want to take a wait-and-see approach.

Even if your lender of choice agrees to lock in, conditions can change at the last minute before closing. Read over your contract and double check that you've received the same interest rate that you negotiated for. Once you sign a contract with the lender, it can be very difficult to renegotiate to back to what was previously verbally agreed upon.