Mortgage Rates: To Lock, or Not?

As of May 27, the rate for a 30 year FRM increased by 21 basis points to 5.45% , while rates for a 15year FRM increased by 12 basis points to 4.86% Rates for a 5 year ARM decreased to 4.94%.

Getting the Best Mortgage Rates: Taking Control

Locking while rates are low is important. However, locking when you are not in a position to get a good rate could cost you money. On a Fannie Mae loan, for example, a 20 point drop in your credit score could cost you a point in some circumstances. Mortgage lenders typically offer the best mortgage rates to borrowers with credit scores of 740 and above. Here are some tips for increasing your credit score. This can take several months or more, so it's important to plan ahead.

• Pay off debt: Eliminate consumer debt before looking for home loans.
• Avoid late payments: Establish on-time payment history for all accounts for a minimum of six months before applying for home loans.
• Use no more than 30% of your credit limit on credit cards: If you can't pay off balances entirely, it may be worthwhile to transfer balances to achieve less than one third of your available credit limit on each card.
• Savings: Mortgage lenders consider savings a sign of financial responsibility. Arranging for direct deposits from your paycheck or checking account to savings account can help you save consistently.

When you apply for mortgage loans, you'll be offered the opportunity to lock in the current rate. if you qualify for the rate that's offered and it's good, locking your rate can help avoid problems if rates rise. Hpwever, some lenders offer the chance to "float down" your rate. This allows you to close at a lower rate if rates drop when you close but protects you from increases if rates rise. Expect to pay for this option however. The peace of mind might be worth it.