By: Louie Latour
Depending on the mortgage lender you choose, you will have several options when it comes to locking-in your interest rates and points. Here is what you need to know to avoid making costly mistakes when it comes to rate locks.
Mortgage lenders guarantee interest rates and points to allow you time to close on your mortgage. This guarantee comes in several different forms and the lender may charge you for it. Mortgage lenders offer guarantees in the form of locked-in interest rates and locked-in points, or locked-in interest rates with floating points.
If you choose the second option, your points could change before you close. Points are a fee you will be required to pay in the form of pre-paid interest to the lender, at the time of closing. One point is equal to one percent of the loan amount; if the lender changes your points because the guarantee did not lock them in, you could be required to pay more at closing. Floating points could work in your favor if market rates decrease before you settle; however, the risk could work against you.
Some mortgage lenders offer the option of floating interest rates and points. If you think interest rates will go down before your settlement date, this option could save you money. Interest rates are extremely difficult to predict; if you have a low tolerance for financial risk you should avoid this option.
