Should I lock in my home loan interest rate prior to inspections?

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The pleasure of owning a home is incomparable to any other possession. So much hard work and research goes into purchasing a home and finding a home loan interest rate that suits you. As you are going to pay towards your home loan for a considerable part of your life, it is quite important to understand interest rates and other associated aspects before you actually sign the dotted line. You may have already selected the apartment of your choice and applied to several financial institutions to know their offering, so the only thing left to do is locking in the interest rate.

What does the phrase “locking in interest rate” mean?

Locking an interest rate means agreeing with the bank for a certain rate of interest to be levied on the loan. The market trend may go down or up and sometimes, buyers lock the lower rate to avoid more charges. In most of the cases the home inspection or appraisal is not done at the time of locking. However, bank offers a rate of interest and other terms in order to get the customer in. It may also happen that the appraisal will not be suitable for the customer or he may not be happy with the amount bank agrees to pay for the property. In such case, the customer can definitely move on. It is also possible to lock the interest rate after the inspection is done by the authority of the bank.

Knowing the interest rate of home loan

Home loan interest rates can be fixed or floating. Fixed rates are sometimes higher than the market rate as you will not have to bear the fluctuations that may happen due to change in the economic policy of the government. The fluctuating interest rates can be quite risky or may be worthy because they may eventually go up or down. In most of the cases, banks and financial organizations offer fixed rate for three to five years after which the market rate prevails. This is completely up to the policy of the bank and the privilege of the customers to choose the type of interest rate.

Shall you go for flexible interest?

This is quite a valid question for all the people who are looking forward to purchasing a home. If the market is up, that is the interest rate is high, you can go for flexible interest rate as it would eventually go down in some time. However, if the market is low, the possibility of interest rates going up is more. It can also go lower but it is not mandatory. You can always take a risk with higher interest rates and take a close look on the market before you think of locking the rate for your property. In any case, you always have the option of transferring your home loan.

What shall you know about locking interest rates?

While locking home loan interest rates, there are certain things you shall keep in mind.

  1. You are just locking the interest rate for the property you have decided. It does not apply to the borrower at all. So, if you choose to deviate from your choice, you will have to go through the process all over again. There can be a different interest rate at that point of time.
  2. If you want to avoid the hazard of the home loan documentation and processing of the loan, you shall present all your documents to the officer in advance. The checking and approval takes a lot of time and you don’t want to waste time in that process.
  3. Even before bank goes for the inspection, do it on your own. You can do proper inspection of the property and get to know if there is any legal hazard involved or not. You can also do the measurement with the help of a civil engineer.

Taking a home loan and purchasing a property is a major decision for every individual. You are going to invest a high amount from your income and you need to be sure of the pros and cons. This applies to locking home loan rates too. Make sure you have every information ready before making the big move.


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