Shopping for an Outer Banks Mortgage? If so, you're probably watching mortgage rates daily — wondering just how they may change when you're ready to close on your new loan.
Your
monthly mortgage payment depends in part on your interest rate, and the
rate on your loan isn't set just by making a mortgage application.
Until you explicitly lock your loan pricing, the rate on your pending
loan will float with financial market conditions. Your monthly payment
may end up being higher or lower than it would have been under the
conditions that prevailed when you applied for the loan.
Generally, you can lock your loan pricing any time after application but at least five days before your scheduled closing.
When should I lock?
If you believe that financial market fluctuations will lead to higher rates before you close on your house — or you simply want to avoid that risk — you should consider locking after you've made your application. The downside is that, if financial markets push rates lower, you may miss out on a getting a lower rate and a lower monthly payment.
If you believe that financial market fluctuations will lead to higher rates before you close on your house — or you simply want to avoid that risk — you should consider locking after you've made your application. The downside is that, if financial markets push rates lower, you may miss out on a getting a lower rate and a lower monthly payment.
When you lock:
- You have protection from financial market fluctuations in interest rates for the length of the lock period. You are not guaranteed that a specific rate will apply to your loan.
- Your final rate, which may not be determined until closing, will reflect the pricing that was available at the time you locked for loans with your specific transaction characteristics (points paid, loan-to-value, etc.) and your credit profile. For more information, please refer to the Loan Pricing Disclosure.
- You can select a specific length of time, usually 30 or 60 days — but sometimes as long as a year.
- You can lock anytime you locate a property, or start your refinancing process, up until five business days before the closing.
- Breaking a lock to take advantage of lower market rates typically involves an additional fee.
When should I float?
On
the other hand, if you believe that financial markets will push rates
lower between the time you apply and the time you close, you might
consider floating. You may be rewarded with a lower mortgage rate and a
lower monthly payment. Of course, you would be risking a higher rate
and a higher monthly payment if market rates rise before you lock.
An
important criterion when approving a loan application is the borrower's
ability to make the mortgage payments. If rates rise, the resulting
higher payment could negatively affect loan approval, and you could be
asked to consider other financing alternatives to gain approval (a
higher down payment, for example, to lower your monthly payment). So,
if you're thinking about floating, you also should consider how much
rates would have to rise before they affect your ability to qualify
under your desired loan terms.
When you float:
- You can take advantage of falling rates before you close on your loan. Lower rates mean lower monthly payments.
- You are not tied to a specific rate.
- You can switch from floating your rate to locking it in anytime after applying and at least five business days before closing.
Only you can decide if locking in a rate is right for you. If you'd like to track rate trends, subscribe to our Wells Fargo Mortgage Rate MonitorSM for regular mortgage rate updates via email. In addition to tracking trends, we can send an email notification to you when rates fall below a specific number.
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