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When do I lock in an interest rate on my mortgage refinance?

[Dec 22, 2008.]

 

Mortgage interest rates are declining

As mortgage interest rates come down, mortgage applications have gone up.  It looks like it is time to refinance! This is great news for homeowners who may have been struggling to pay their mortgages.  Usually, there are closing costs associated with doing a refinance.  You want to get the maximum benefit of those costs by locking in the lowest possible interest rate.  If you are going to pay the closing costs, you want to get the most improvement on your mortgage payment in exchange.

Interest rates change without notice

Because mortgage interest rates come from the trading of mortgage backed securities, the interest rates change throughout the trading day in a similar way to the stock market ups and downs.  If there is a high demand for mortgage backed securities, the yields on those securities come down and so do the mortgage interest rates.  If none of the bond traders have buy orders for mortgage backed securities, those selling them have to increase their yields to make them more attractive to investors. When buyers of mortgage backed securities are scarce, our mortgage interest rates go up. 

Tips for locking in the best interest rate


  • Set a rate target before you refinance.  Based on the current interest rate you have, and the cost to refinance, determine how much you need to improve your payment to make the costs of the refinance worthwhile.

  • Ask your loan officer about their company's policy for locking an interest rate.  Does that company offer the most current interest rates available throughout the day?

  • Look for a lender who can offer you a float down option if the interest rates improve after you lock your rate, but before you complete your loan process. 

  • Make sure you lock for a long enough period of time.  For example, if your lender needs 30 days to complete your loan process, do not lock your loan for 15 days.  Make sure you lock for enough days to cover the lender's time frame.

  • The sooner you close, the sooner you start saving money, so look for a lender who can perform quickly.  Shorter lock periods are cheaper than longer lock periods.


Locking in the best interest rate is the key to a successful refinance.  Right now rates are declining and it is an excellent time to lower your monthly mortgage payment. 

About the Author:

Tiffini Anderson is a Certified Mortgage Planning Specialist for PrimeLending.  She is often featured on the House Detective TV series and also does the Mortgage Market Update on Tuesday mornings for the Ross and Monica radio show 780am in Reno.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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