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Mortgage Q&A

Q. Why would I need to lock the interest rate on my loan?

A. Locking-in the loan’s interest rate (making sure that the rate is available on the closing date) is a matter of preference. If financial newspapers and broadcasts talk about volatile interest rate conditions, or keep mentioning that interest rates may be headed up, locking your loan rate would give you the peace of mind of knowing that your loan payment obligations will not increase if rates surge higher. Such a decision would only make sense, however, if the fee were reasonable. A lender may or may not charge for this service. If your lender does charge a fee, the fee will vary depending on how long you wish to guarantee the interest rate. Would it be 30 days or 60 days? You also need to consider how an increase in rates would affect your ability to meet your monthly mortgage obligations.

Q. My lender verbally assured me that my rate would be guaranteed. Is this OK?

A. As with any business agreement, it is preferred that you get the terms of the rate-lock in writing and make sure you understand any fees and clauses that are associated with the agreement. The agreement should spell out how long the rate lock is effective, how much it costs, and whether or not the lender will offer you a lower rate should interest rate levels fall by the closing date. This is sometimes referred to as a “float-down” option. Due to the number of steps and people involved in approving a mortgage loan, delays can happen. Ask the lender to spell out any options to extend the rate lock in the event of delays, and if there is a charge for this type of extension.

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