“Well, it was nice while it lasted.”
You’ll hear that line from some folks who are now dealing with the reality of rising mortgage interest rates, which constantly fluctuate based on market conditions. You can check and compare daily VA mortgage rates online, but bear in mind that your rates will come in lower or higher depending on your credit score and whether or not you have a down payment. So, indeed, shopping around for the most favorable rate is prudent, but that’s not all you should do to make sure to get the best VA mortgage interest rate. Before we get to that, let’s discuss what is making current mortgage rates surge.
Why are mortgage rates rising now?
So far this year, we’ve got several economic elements that have come together to create the perfect storm. High inflation is a significant contributor, and then the Federal Reserve is trying to tamp down rising inflation by hiking up borrowing costs. And the Fed is considering an even more aggressive path with plans to raise rates a half-dozen more times in 2022. And don’t forget that there’s always the potential for a COVID resurgence and the reality of Russia’s invasion of Ukraine. All of these factors help to push up mortgage rates.
How rising mortgage rates affect your buying power
The basic math is that the higher your interest rate is, the higher your monthly mortgage payment will be. Of course, when you use your VA Home Loan benefit, you’ll already be ahead of the game. Even in this time of rising interest rates, yours will be significantly lower than for a conventional loan – but not as low as they recently were.
Don’t chase mortgage rates – lock ‘em!
Your interest rate is crucial when deciding your monthly budget, and it impacts how much home you can afford. It’s tempting to try and outsmart zigzagging rates, hoping you timed it just right to land the lowest rate in the next fifteen minutes – because they could change that quickly. Don’t do it. Instead, shop around to find the best deal, and when you find a VA lender offering a rate you feel comfortable with, lock it.
What exactly is a mortgage lock?
A VA mortgage lock is an agreement by the borrower and the lender specifying the number of days a loan’s interest rate and points are guaranteed.
Purchasing a home is stressful enough, and by locking your VA mortgage rate, you can relax knowing that the favorable rate you first received will be the same rate you have when you close the loan. That’s one less thing to worry about. Let’s say that your loan takes thirty days from start to close; well, you know those interest rates can shoot up in that short but volatile timespan, costing you thousands of dollars over the life of the loan.
How to lock your VA Loan rate
Simply telling your loan officer that you like their rate won’t lock it in, but the process is not complicated. To lock your interest rate, fill out a loan application and keep it on file with your lender. Basically, you’re giving your lender written permission to lock in the rate you want.
Check with your lender to see if they charge a fee to lock your interest rate. And make sure you know how long the lock period lasts. Your interest rate lock can range from a few days to about two months. Remember to ask your loan officer for a closing time estimate so you can avoid any possible rate increases in the days leading up to your loan approval and closing. As you can see, many moving parts make up the mortgage loan process, so be sure to communicate with your loan officer throughout.
Does a pre-approval letter lock in the interest rate?
Nope. Although your VA lender will quote an interest rate for your loan, it’s considered a floating interest rate that can fluctuate until all parties have signed a purchase agreement. Furthermore, that floating rate will continue to fluctuate during the time leading up to your closing. So, you can see how important it is to lock in a favorable rate.
What happens if the rates go down after you’ve locked in?
It depends. For instance, if the rates drop dramatically during your lock period, some lenders might offer a “float down” provision to a lower rate. However, if the interest rates only budge slightly, there’s not much you can do because your rate is locked.
You can see the importance of reading – not skimming – your lender’s lock policy to understand what you’re signing. If you have any questions regarding locking interest rates, don’t hesitate to contact one of Aligned Mortgage’s loan officers, who will gladly explain the process.