LOCKING IN YOUR INTEREST RATE

Michael Holigan: You've found the house you want. Qualifying isn't a problem. And the interest rates are down. It's time to make another decision. Should you lock into a rate now or take a chance later? Chris and Sherry Patton, like other home buyers, were faced with the same dilemma. The interest rates were looking good, but what if they dropped, or even worse, what if they went up? Any way they went it was a gamble. But in this case the Patton's made the right call.

Chris Patton: You know, people say "Well, go ahead and lock in now" and others say "Aw, wait, it's going, you know, interest rates are going to come down", so, we kind of just got to the point where we just said "It's probably not going to get much better, we're pretty happy with it", so we said "Let's lock in".

M.H.: A lock in is a promise by your lender to close your loan at a certain interest rate. Lock in's, though, do allow some flexibility. You can get a short term lock in, from 30 to 60 days, usually at no charge. Anything beyond that will cost you half a point or more. That's $500 on a $100,000 loan. There's also a float down option. If interest rates drop, this allows you to secure the lower rate. Sometimes this option is free, sometimes there is a charge. You have to check with your lender. There's another variation called the float then lock option. If the house you're purchasing may not be completed anytime soon, you can wait until you're within 30 to 60 days of completion, then lock in. If interest rates are declining, continue to float. This option won't cost you anything. The Patton's went with a short term lock in, but at first weren't sure they made the right decision.

Sherry Patton: My mom was wanting us to wait for awhile and see how the market would change with our interest rate and everything, and she's like "I don't know if that's the correct decision you're making, locking in as soon as you did" and then, of course, we locked in and the very next day it went up and so she called me back and said "I'm sorry, I saw the interest rates this morning and realized that you did make a good decision".

M.H.: A lock in guarantees you a certain rate. Make sure that all terms are clearly defined and put on paper and signed by both you and the lender.

 

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Episode 30 1996 - 97 Season

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