Ever heard of sticker shock?

It’s when you’re shocked or surprised by an increase in an item’s price. It happens with cars, it happens with houses, and it happens with mortgages.

What causes sticker shock with a mortgage?

Sticker shock with a mortgage happens when you apply for a loan, don’t lock in the rate, and the rate goes up.

How do you avoid sticker shock with your mortgage?

You ask these 5 questions:

  1. Ask your loan officer plain and simple: how do I lock in my rate? Chances are you need to sign something in writing (a Lock In Agreement) that specifies the rate, the loan amount, and the lock in period with an expiration date. 
  2. Ask if you need to pay any fees to lock in the rate. Some lenders require you pay a lock in fee that gets refunded at closing. 
  3. Ask if you can lock in before submitting your loan application. Most lenders require you to submit the application before locking in. But if the market is volatile and rates are going up, you might want to lock in before you submit an application. 
  4. What is the rate lock window? If rates come out at 10 am, do you have until 5 pm to lock them in? What happens if rates change during the day? (Make sure to ask about “black out periods” when you can’t lock in.)

  5. What happens if you lock in, then rates go down? Some lenders offer a  “float down” option where your rate can not go up, but it could come down if rates come down.

Simply applying for a mortgage does not necessarily lock in the interest rate. With many lenders, the approval process is different and separate from the process to lock in your rate. But one impacts the other, because if you apply, don’t lock in, and rates go up, you may no longer qualify.

So should everyone lock in their rate when they apply for a mortgage? It depends. If you think rates are going to go up, then lock in your rate. If on the other hand, you think rates are going to go down, you should “float” the rate or not lock in initially. But you must check in with your loan officer to monitor the current rate.  If you’re not locked in, rates can go up or down during the underwriting process.

How do you know if you’re locked in at application?

Your Loan Estimate has a section at the top right of Page 1 that says if your rate is locked in or not. If it says your rate is not locked in, then your rate is floating with the market.

If you want to talk about locking in a rate at Amerifund, call (888) 650-7316 or fill out this form and someone will contact you.

(c) Copyright Eris Saari 2016, 2019