If you’ve already shopped around and found a Maryland home loan with an interest rate that works for your financial situation, you may think you’re all set. However, many Maryland homeowners forget that without a mortgage rate lock, the monthly premium is not assured. This leads to many homeowners getting stuck with increasing monthly payments and dipping into their savings to refinance.
This article explores fixed-rate mortgages, including strategies for locking in your monthly premiums. Our goal is to help new and existing Maryland homeowners avoid being dependent on a volatile market for their mortgage rates.
What is a Fixed-Rate Mortgage?
Maryland mortgage rates have increased rapidly since 2020 to an average of 6.59% for a 30-year fixed-rate loan and 5.93% for a 15-year fixed-rate loan, as of Sept. 28, 2024. With a median home value of over $430,000, Maryland homes are becoming a more extensive investment by the year, making any strategic changes to your mortgage strategy even more financially significant.
Despite signing for a specific mortgage rate, the premiums on home loans do not stay the same each month unless they are “fixed.” The opposite of fixed mortgages, adjustable-rate mortgages (ARMs), fluctuate with the market's performance after their initial fixed-rate period (usually around 3-5 years).
ARM loans have advantages, including a lower initial rate, which can give new owners more funds to work with during the first few years. However, once the adjustable rate kicks in, homeowners will have to deal with changing premiums and rising interest rates, so many Maryland homebuyers are searching for ways to lock in their rates.
Fixed-rate mortgages lock the monthly premiums for a set period. As long as homeowners close within that period, their rates will remain fixed for the duration of the loan or the specified period.
What are the Benefits of a Fixed Mortgage Rate?
Locking in your mortgage rate comes with several benefits. The most pressing reason to do it is to make sure your mortgage rate doesn’t change before closing. Even a 0.1% increase can equate to thousands in extra interest over the loan’s lifetime, depending on your home’s value.
However, the extra cost isn’t the only problem with an interest rate that spikes before closing. If it increases too much, you may no longer be eligible for the loan according to the lender’s guidelines for maximum debt-to-income ratio (DTI). Your predicted mortgage rate payments factor into the monthly expenses used to calculate the DTI. Lenders determine the maximum DTI they are willing to accept based on demand and the borrower’s other risk factors. Maryland Mortgage Program loans, for instance, cap the borrower’s DTI at 50% for conventional loans.
Regardless of the exact situation, if your estimated monthly debt boosts your DTI above the lender’s maximum, you can be denied a loan for which you were previously approved. With a fixed mortgage rate, you will still qualify for the loan despite your lender’s revised DTI calculations.
How to Get a Fixed-Rate Mortgage
After receiving the loan application, the lender will pull a credit report and make their loan estimates, including your monthly premiums. If you have already found a home, a lender could lock in the mortgage rate of your new address with a purchase contract. However, if you’re still searching for a home, most lenders will not offer fixed rates.
Despite this, locked rates can be achieved ahead of time and transferred to the address once you’ve settled on a new home. After shopping for quotes from a few lenders, you should try to lock in the rate as soon as possible.
To do this, request a locked rate from the lender. If they consent, review their loan estimate and make sure the closing costs are the same as when you first applied. Pay attention to the expiration of the lock, which is the date you have to close by to secure the fixed mortgage.
Notably, you can lose a locked rate even after being confirmed for one in certain conditions. The first is a radical change in your credit score, which could prompt the lender to increase the locked rate. Changing loan programs can also impact the rate.
Pay off the balance on your credit cards before applying to give yourself a better chance of securing a low fixed-rate mortgage. Ask your prospective lenders about credit rescoring services, which can help homeowners rapidly improve their credit and apply for better loans (for a fee). Until you have secured the locked rate, try to avoid new lines of credit, including personal loans and car loans, to avoid complicating your credit score.
Consult a Professional to Lock in a Fixed-Rate Mortgage in Maryland
Maryland homeowners face long-term uncertainties in a changing housing market when trying to close on their homes. Without a fixed-rate mortgage, monthly premiums can change due to market performance and revised debt calculations, costing homeowners thousands of dollars or causing them to lose their loans before closing.
Contact our professional team at Woodsboro Bank to learn how we help Maryland homeowners fix their mortgage rates and get the premiums they deserve in an uncertain market.