Just like any goods or services, interest rates for mortgage loans can have a either a cost or offer a credit. This is also known as price. The price of a given interest rate is determined by the risk factors associated for that specific loan.
The FICO score, loan-to-value, type of property, and reason for the mortgage (i.e. purchase, rate/term refinance, cash-out refinance) all have an impact on an individual borrowers’ interest rate.
Interest rates are re-priced everyday (sometimes even during the day) for better or worse. The pricing changes every day, but it is required that you lock your interest rate during the loan process. The standard interest rate lock is 30 days but you can also lock for 15 days, 45 days or even 60 days. The length of the lock will either have a negative or positive affect on your interest rates’ pricing though.
The ultimate question is, “When should I lock my interest rate?” This depends. If you are going through the pre-approval process to purchase a new home but have not found a home or have an accepted offer, it does not make sense to lock the rate. It could take a day to find a home and have your offer accepted or it may take 3 months. Without a definitive Close Date, it does not make sense to lock your interest rate.
Let’s say you do have an accepted offer on a home and you know you are going to close 30 days from now. Should you lock the interest rate right away? Once again, that depends. The main question that a borrower needs to ask is, “am I OK with the pricing of the interest rate? How would I feel if the same rate cost $500 more tomorrow? What if the same rate cost $500 less tomorrow?”
The interest rate itself generally does not change dramatically in a 30 day span. If a borrower elects to float an interest rate, they open themselves up to the possibility of ending up with a worse interest rate when time comes to lock it, assuming the interest rates deteriorate at that point in time.
Give us a call at 760-930-0569 and we can discuss your different loan options and whether floating or locking is the best route for your unique situation.