Homebuilders and their customers — who wait months for construction to be completed — crave the same thing: certainty. That explains...
Homebuilders and their customers — who wait months for construction to be completed — crave the same thing: certainty. That explains the appeal of long-term rate locks.
Builder and buyer seldom know for sure when the house will be finished, and the final cost often is in doubt until late. And both sides worry about the impending storm clouds of rising mortgage rates.
So how do you find the best deal? Experts say to shop around and do your homework:
Builders pressure borrowers into using their affiliated lenders, but it’s a good idea to apply at a couple of other places, too. Some lenders “dramatically misprice” rate locks, says Bob Walters, chief economist for Quicken Loans, and you might as well take advantage of them if the rest of the deal looks good.
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A rate lock is the lender’s promise that the mortgage’s interest won’t exceed a certain rate if the loan is closed by a deadline. For example, if you lock the rate at 6 percent 14 days before closing, and rates rise over the next two weeks, your loan’s rate is 6 percent if you close on time. Meanwhile, someone who didn’t lock — who floated, in industry parlance — would pay the higher rate.
Each lender handles rate locks differently. Most don’t charge a fee to lock a rate within 30 days of the scheduled closing. Fees are common when the lock is beyond 30 days. The fees vary, and some lenders will refund all or part of the rate lock fee at closing.
Long locks usually are covered by caps. If today’s rate is 6 percent, a 180-day lock might cap the maximum rate at 6.5 percent instead of today’s rate. A lot of long-term lock programs have a float-down option, which allows the borrower to seize and lock a lower rate shortly before closing if rates have dropped in the meantime.