How is my Interest Rate and Points Determined?

Part 4

This is part four of a nine part article on the understanding of Mortgage Lock-Ins.

How is my Interest Rate and Points Determined?

Locked-In Interest Rate and Locked-In Points are done by the lender. They allow you to Lock-In both the points and interest rate that was quoted to you. This is also considered a true Lock-In because your mortgage terms should not increase above the interest rate and points that you have agreed upon, even if the market conditions change.

You could also be given a Locked-In Interest Rate-Floating Points. This is when the lender allows you to Lock-In the interest rate while permitting the points to rise and fall with changes in the market, also known as floating.  Points rise and fall as interest rates rise and fall. So even if you float your points, the lender may allow you to Lock-In points at some time before settlement at whatever level is then current. If you float your points and the market interest rate increase by the time of settlement, the lender can charge a greater number of points for a loan at the rate you did the Lock-In.  Beware, you can lose money on this as you will have higher up-front costs.

            Example: Let's say you Lock-In a 10% interest rate but not the 3 points that went with that rate. A month later, the market interest rate is the same but the points the lender charges for that rate have dropped to 2 ½. With the lender's agreement, you can Lock-In the lower 2 ½ points.

A third option is Floating Interest Rate-Floating Points. This allows the lender to let you Lock-In the interest rate and the points at some time after application but before settlement. If you rates will remain level, or fluctuate up or down, you may want to wait on locking in a particular rate and points. If rates go up, you should expect to be charged the higher rate.

There may be more options than these. Check with your lender and find out if others are available.

This and many other helpful consumer articles may be found at www.debtkiller.com or by reviewing Janna's many regular personal financial updates at her blog, http://jannajones.blogspot.com