If you locked in before rates fell, you're probably stuck paying a few dollars more
You locked in a mortgage rate a few weeks ago that you thought was fair -- even good -- and now mortgage rates are going down. So here you are paying 6.93% on a $165,000 30-year fixed, and today your lender is offering that same 30-year fixed for 6.65%.
Did you make a mistake?
Locking in was a smart thing to do after two years of steadily rising rates. And it's not a decision that's costing you a fortune. The difference between those mortgage rates is just a shade higher than $30 a month or about $370 a year.
Can you do anything about it?
Chances are you're stuck with the higher rate, because a deal's a deal.
"If the lender locked the rate then, by agreement, that's the rate the buyer lives with, "says Tom Pellinger, a senior loan officer with Home123 in Albuquerque, N.M. "It's basically a gentleman's agreement: we won't raise your rate if it happens to go up before closing, and you won't hold our feet to the fire and ask for a lower rate if it goes down."
But there are three things you can try:
- Talk to your lender. There are no rules governing this situation, so you have nothing to lose by asking. One loan officer we talked to suggested that a lender might be willing to split the difference with the borrower, just to keep you a loyal customer. If you're locked at 7% and the new market rate is 6.75%, he might settle on 6.875%.
- Secure a lower rate from a different lender by starting the process all over again. This would only be possible if you have sufficient time to go through another application process. You would lose the application fee you paid the first lender, but if the savings were significant, it might be worthwhile.
- Buy down the rate. "If the buyer decides to buy down the rate (pay discount points upfront to get a lower interest rate) from the locked rate, he or she normally can do that within a week of closing," Pellinger says. "So, if the rate were locked at, say, 7% and one discount point (1 discount point equals 1 percent of the loan) would bring it down to 6.625%, the lender will most likely be more than willing to do that."
Whether you should do that is another story. The answer lies in the number of years you plan to stay in the house. Be sure you will live there long enough to recover the discount point(s) you paid.
If you are currently shopping for a mortgage you are facing a problem that hasn't come up in a while: the prospect of locking in a rate that turns out to be higher than your lender is offering by the time you close.
Mortgage rates have been marching higher for the better part of two years, and borrowers have been committing to a rate as quickly as possible to keep from paying more.
The Federal Reserve Bank is behind that. It's been charging banks more to borrow money, and the banks have been charging us more to borrow money, all in the hope that we'll spend less and keep inflation in check.
But our survey of major lenders shows that the average cost of 30-year fixed-rate mortgage fell from a high of 6.93% on June 28 to 6.65% this week, on the hope that the Federal Reserve will halt its rate hike program at least temporarily on August 8.
If the Fed raises short-term interest rates to rein in inflation, mortgage rates will probably follow. If the Fed doesn't raise interest rates, mortgage rates could inch down.
What should you do if you're on the verge of locking in on a mortgage rate right now?
Although there is a great deal of speculation about what the Fed will do, no one really knows.
So it's usually wiser to err on the side of safety. When you lock in your rate you can be assured you have a rate and a monthly payment you can live with -- one that will allow you to buy the house you want. In other words, you'll be able to sleep at night.
That's why most people lock in. They want to know that the rate they were quoted will be there when it's time to close, because for some a higher rate could disqualify them for the loan.
To be sure your rate is there at closing get your lock agreement in writing; the interest rate, the duration and the cost. If you don't have it in writing, you don't really have a lock.
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