Why Would I Want to Lock in My Mortgage Rate?
When homeowners are refinancing their mortgages, they will often find themselves asking the typical mortgage rate. This is often the starting point for comparison shopping because refinancing often requires a change in the interest rates. The specific rate that is offered may not be what the homeowners are actually looking for.
Homeowners young and old are seeking interest rates that offer a competitive alternative to the rising prices of homes in their age group. Unfortunately, the typical mortgage rate offered by lenders does not currently offer a good option for this segment of borrowers. Homeowners can refinance their homes but the rates they receive are usually lower than those offered to older homeowners. In addition, the introductory period on the new mortgage is not long enough to make significant savings on a monthly payment when compared with the longer-term fixed-rate mortgage. For this reason, homeowners must take time to explore their options.
A common mistake among younger home buyers is thinking they can obtain a great rate if they choose a traditional mortgage. The truth is, interest rates on a conventional home-buying loan are at their lowest point since the recent housing collapse. Homebuyers who want to lock in a low rate should instead focus on home-buying options that offer greater flexibility. For example, a homeowner may qualify for a no documentation loan or a short-term residential mortgage. These have reasonable interest rates and do not require proving income or credit history. Another option is to refinance a home-buying loan to a conventional loan with a higher interest rate, thereby reducing the typical mortgage rates.
There are several reasons why more homeowners refinance than to shorter-term fixed-rate mortgages. First, many younger borrowers are ineligible for the historically low interest rates offered to homebuyers during the boom. For this reason, refinance rates are often higher for these homeowners. Second, the current climate of the real estate market has resulted in too many foreclosures and homes for sale. The result is that bank loans are being re-financed at higher interest rates and fees, which are making refinancing more difficult. The result is that most borrowers are left with only one choice: to refinance, at a higher rate, to avoid the high cost of refinancing.
One way to get around the high cost of refinancing is to get a longer term, such as a 30-year fixed-rate mortgage. This option allows the homeowner to lock in lower interest rates, since the longer they take out the loan, the lower the payment will be. In addition, there are other advantages to longer loan terms. For instance, a homeowner may receive the lowest mortgage rate available, but the longer it takes the homeowner to pay it off, the more money he or she will save. In the end, longer terms will result in higher monthly payments, but lower interest rates will also be achieved.
The perfect time to refinance is during the first two weeks of February. This is the time frame when banks and mortgage companies are more flexible to new loan applications. Some lenders have already started reducing their normal mortgage rates and will offer much better deals to qualified applicants. There are signs that February might just be the best time to refinance your home loan.
Another reason to lock in your interest rate is that many homeowners are hoping to secure a good deal for their first-time homebuyer loans. Unfortunately, many first-time homebuyers have been locked into excessively high interest rates for months or even years. For example, many young adults hoping to purchase their first home took five years to save up enough money to purchase their first place on their own. Unfortunately, the typical mortgage rate for twenty-year-olds is only 2.5 percent. With all the hype about being a first-time homebuyer, young adults are stuck waiting for their lock in rate to go back down.
Another reason to lock in your mortgage rate is that many lenders are starting to offer special incentives to potential applicants who also want to refinance. Some of these incentives include; lower interest rates for six-month or longer repayment periods, lower interest rates for borrowers who also plan on paying off their mortgages early, and some lenders are starting to offer consumers incentives for making their payments on time every single month. If you are one of the millions of young adults with excellent credit, you may have already noticed that the interest rate you are paying now could be much lower if you made your payments on time every single month. Although some lenders may require a higher credit score to qualify for their incentives, there are many lenders out there that are willing to work with people with bad credit.