Mortgage Rate Lock-In Can Shelter You From a Surprise at Settlement -- But Get It in Writing
QWe signed a contract to purchase our first home last week, and settlement is scheduled for mid-May. Before the contract was signed, we shopped around for the best mortgage. After the real estate contract was signed, we immediately contacted the lender we had selected and made a formal application. The lender asked us if we want to lock in the interest rate.</br></br>This is our first house, and we have absolutely no understanding of the way the mortgage market works, so we did not understand his question. However, he explained that if we lock in by signing a document called a "loan lock-in," the rate the lender quoted would be guaranteed as long as settlement takes place by the time specified in the sales contract. We know that interest rates are on the rise. Will this lock-in document protect us?</br></br>AA lock-in agreement will be your best protection, but all terms and conditions must be spelled out clearly and the document must be in writing.</br></br>In the past few years, mortgage interest rates have been at their all-time low. So potential borrowers were satisfied with their under- 6 percent rates. But now that rates are on the rise, potential home buyers want absolute certainty that the loan they have arranged will in fact be available on the day of closing. I believe that we have seen the last of the under-6 percent loan rates, at least for the foreseeable future. Thus, the concept of locking in your mortgage interest rate becomes important.</br></br>You are concerned that your lender will honor its commitment to you. This is understandable. Even if you can afford a higher-rate loan, you may now have a double problem: I strongly suspect that because property values have dramatically escalated in the past few years, you probably agreed to pay a high price for your house and a higher mortgage rate will mean an even larger monthly payment.