Michaela Phillips, Guaranteed Rate, Inc.

Michaela Phillips,
Guaranteed Rate, Inc.

Many homebuyers take a sigh of relief once their search is over: at last, they have a property under contract. The hard part is done – the showings, the negotiating, and the approval are complete. But that doesn’t mean you can let your guard down: locking in an interest rate is the vital next step.

One of the largest and most important aspects of buying a home is the interest rate: it greatly influences the overall cost of your house. In a typical situation, you’re allowed to lock this rate in as soon as you go under contract. This provides you with security before your closing.

Per Bankrate, a mortgage lock rate is a guarantee that a lender will deliver on a specific interest rate as long as the mortgage closes by a specified date. These locks protect the borrower from rate fluctuations, ups and downs that are frequent in the industry.

If you’re closing within 30 days, locking in the interest rate is highly recommended; it’s far too hard to predict what will happen to rates over the next month. This isn’t a requirement, however. You can hope that the interest rate will tumble and fall. You can even ask your mortgage lender to send you rate updates on a daily basis, which I typically do.

Choosing not to lock in the interest rate is a practice known as “floating the rate” and it comes with risk. Sure, there’s always a chance the interest rate will decrease, but there’s a chance it’ll increase, too. Thus, it’s a gamble and a homebuyer must decide if it’s one they’re willing to take.

If they do, most lenders still require a locked interest rate 10 days before closing. This assures that all documents are prepared in time because locking a rate in comes with disclosures and its own pile of paperwork.

Regardless of the purchaser’s preference, most people in the real estate field don’t recommend that homebuyers float their rate, at least not if they’re closing in a month’s time. The reason is simple: it’s better to be locked in an interest rate and wishing you weren’t versus not being locked in and wishing you were.

By Michaela Phillips, Guaranteed Rate, Inc. Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail michaela@michaelaphillips.com or visit michaelaphillips.com. NMLS:312874.