Interest rates face fluctuation on a regular basis for different reasons, and a change by a few basis points can create a big difference when dealing with a six figured loan transaction. This is where rate locks enters the scene.
What Is A Rate Lock?
Rate locks simply mean locking in an interest rate. It is the move that protects people from rising rates and it allows them to buy some time to finalize everything about their home buying transaction.
The rate lock lasts for a specific period of time, usually 40 days, and you have until the end of this period to close on your property. So if you are planning to lock in your rates, be aware of the pitfalls that comes with it, including the possibility of not being able to close the loan by the rate lock period's end.
Keep in mind that home loans need an appraisal and this could take some time. Some states may even require more appraisal time than others. So if you do a rate lock, make sure that you won't fall short of time closing on your loan.
Fortunately, lenders may also be open to extending your lock in period. Some lenders may ask for a charge, but others may also not.
Aside from asking for a longer term, you can also steer clear from headaches if you prepare all the needed documents beforehand. Remember, the sooner the lender gets hold of the requirements, the sooner your loan can be wrapped up. Needed documents should include (but not limited to) two pay stubs, two years W-2s, and recent bank account statements.
The best reason to lock in your rates is to protect yourself from the volatility of the market. It has been reported that there was an intention to increase short term interest rates and it should lead the mortgage interest rates upward. This is why if the rates are currently low, it is better to lock it in. You don't wanna regret seeing the low rates slip through your hands. Get a professional's assistance so you'd know how rate locks could work for you.