Interest Rate Locked

by Julian
(Miami, Florida USA)

Ask Kate about changes in an interest rate that's locked: Hi Kate, I have a signed interest rate disclosure document showing a 4.5 percent interest rate locked and 0 discount points.
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Julian continues... Now the bank says I have to pay points because the appraised value of the house is lower than what they originally estimated. Can they do that? Thanks.

Kate Answers: Interest Rate Locked

***zz-portrait-left.shtml*** Dear Julian,

No one likes surprises, especially in an interest rate that's locked.

Now if you know much about me, you know changes to a mortgage interest rate after it's been locked are a hot spot for me. So I don't take your question lightly.

But this is more about the value of your house than it is about changes to an interest rate that's locked.

The amount of the mortgage compared to the value of your house, for short this is called loan-to-value, affects the interest rate. The higher the percentage of the value borrowed, the higher the interest rate.

So when your appraisal reflected a lesser value, your loan-to-value percentage increased. Sad to say, this raised your interest rate.

So now what? Well, you have a couple of choices.

1 - You can buy down your rate by paying points.

What are points?

Points are prepaid interest. In other words, to get a lower rate over the long term of your mortgage, you pay part of that interest upfront in points.

2 - Your second choice is to avoid paying points and take a proportionately higher rate. You'll see why I liken rates and fees to a balloon when you go to Reducing Mortgage Closing Costs - Little Known Secrets. This will help you make an informed decision.

Julian, I have also included more help at the bottom of this page to give you an insider's look at locking mortgage rates.

Best wishes in your refinance,

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