Getting a Low Interest Rate

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Freezing the Rate

A rate "LOCK" or "commitment" is a promise from the lender to guarantee a specific interest rate and freeze your Lender Closing Costs.  This protects you from getting through your entire application process and discovering at the end that the interest rate has risen higher.

Rate lock periods can be various lengths of time, anywhere from fifteen to sixty days, with the longer spans generally adding cost to your loan.. You can get a longer period for your lock, but in choosing this option, will most likely have a slightly higher interest rate than you would have with a shorter period.  A good way to view "LOCKING" is like buying insurance.  When you lock for a longer period, say 45 or 60 days, you are Guaranteed that your interest rate will not rise in a volatile mortgage market.

If you wait until your closer to your closing date, your lender fees are slightly less providing the market interest rates have not changed, In a market that is rising or fluctuating, you could be forced to pay higher fees to the lender or choose a higher interest rate that has less fees.  

This rate lock thing can be confusing.  Think of the process this way:

  1. All Banks use thier money to fund your mortgage
  2. All Banks sell the mortgages they write to Fannie Mae or Freddie Mac at the CURRENT MARKET PRICE
  3. The Banks then have money to write new loans
  4. Banks make money on the interest rate spread between the rate of your loan and the price Fannie and Freddie pay
  5. Market rates change daily, sometines several times a day
  6. If you want a lower interest rate than the current "Market Rate" you need to pay a premium - traditionally called "POINTS"
  7. Locking your loan fixes both the interest rate and the loan cost so you know ecactly what the loan will cost.  

More Ways to Save on Interest

In addition to choosing the shorter rate lock period, there are more ways you can get the lowest rate. The larger down payment you can pay, the better the interest rate will be, because you will be starting with more equity. You could opt to pay points to bring down your interest rate over the loan term, meaning you pay more up front. One strategy that makes financial sense for some is to pay points to reduce the rate over the life of the loan. You'll pay more initially, but you'll come out ahead, especially if you don't refinance early.

Great Mortgage NMLS478647 can walk you through the pitfalls of getting a mortgage. Give us a call: 708.966.6005.

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