Mortgage rates rise and fall, which is an everyday thing in the open market.
If so, how do home loan applicants grab the best deal? Are there signs they have to look out for or seriously consider?
Major economic events drive these fluctuations. Mortgage rates depend on the price of mortgage-backed securities. These are a type of bond and thus market-driven. Like stocks, a strong economic report, a government policy from home or halfway around the globe can move it.
And these moves often indicate that waiting is not the best way to get the rate borrowers want. Rather, a rate lock-in can be an initial option.
What is a Mortgage Lock?
The Federal Reserve Board and Investopedia define it as "an agreement between a borrower and a lender that guarantees the borrower a specific interest rate on a mortgage, while [his/her] loan application is being processed."
Rate locks can make a borrower ensure the rate they shop for is the rate they get. Interest rates frequently change. Thus, the quoted terms may be unavailable at settlement. Since loan processing takes time, it provides borrowers a protection against rising borrowing costs.
A lock-in is an option during the initial part of the loan process. As such, it does not provide unlimited protection. Imagine the rates get lower than your rate lock? It may also come with a cost, like a deposit, an upfront fee, and additional charges.
That is why such arrangements are temporary. The standard closing day for a lock-in is 30, all the way to 90. Only a few get in a 360-lock in because it means higher mortgage rate.
"In general, mortgage rates increase 12.5 basis points (0.125%) for every 15 days you add to your rate lock, up to 90 days. Beyond 90 days, expect to pay higher rates and a non-refundable, upfront fee," writes a mortgage market expert at The Mortgage Report.
Home loan borrowers in Utah can also opt for a mortgage rate lock float down. They can lower their rate when mortgage rates have fallen on a one-time basis.
Market-defined mortgage rates are only one part of loan shopping. The other part entails personal factors that can make your mortgage rates higher or lower. When you want a lock-in, make sure that you already know the amount of house you can afford in Utah, along with interest rates, for a particular period. When you do, you'll know which mortgage rate you can settle when you apply for a loan and rate lock.