With rates poised to rise, paying extra for 'rate-lock' is wise decision

Interest rates are expected to rise in the weeks ahead, so homebuyers who don't have a solid "commitment letter" from their bank should consider paying a modest fee for the rate that the lender first quoted - or a lower one if rates surprisingly decline.

Q. We recently agreed to buy a house. The lender who is financing the purchase has offered us a "rate-lock protection plan" that would guarantee that the 5.5 percent rate we were quoted when we first applied for the loan cannot rise before the sale is completed, and that we would get an even lower rate if rates drop before our 60-day closing date. The bank would charge $250 for this guarantee. Should we take it? A. Yes. Mortgage rates are near their historic lows, but economists generally agree that rates are much more likely to go up instead of down in the weeks ahead as the economy slowly picks up steam.It's unfair, but banks and mortgage brokers generally aren't required to provide a loan at the rate and other terms that borrowers are first offered when they file an application. Until you have a formal "commitment letter" from the bank, which can take several days or even weeks to receive, your rate can be increased substantially.No one wants to add $250 to his or her closing costs. But you should view this relatively modest fee the bank would charge for its "rate-lock protection plan" more as an insurance policy against a future rise in rates before the home sale closes. If rates jump from the 5.5-percent you were originally quoted to 6 percent by the time the deal is completed, the increase would add $63 to your monthly payments if you are seeking a $200,000 loan, and more than $23,000 in interest charges during the next 30 years.Paying for such a guarantee is especially worthwhile now that we're heading into the peak spring home-buying season, when sales are often delayed by appraisers, home inspectors and bank employees who become inundated with work and cannot close a property transaction within the lender's promised time frame.As a bonus, paying the $250 for the rate-lock guarantee will save you $71 per month if rates surprisingly drop a half-point from the 5.5 percent you were initially quoted and will save you nearly $25,000 in interest charges over the life of the loan.Q. We're getting worried because it looks like my husband may lose his job soon, and we would be unable to afford our monthly housing payments if he is unemployed. We are already struggling as it is, what with rising energy costs, a daughter who has just started college and the like. What can we do?A. I'm sorry about your financial problems and hope they get better soon. I'm sure it's of little solace, but millions of people across the nation are having similar problems.You need to do two things immediately, before matters get even worse. The first is to call your current lender and see what type of help it might be willing to offer. Such aid can range from a temporary reduction or even suspension of your payments, to a permanent loan modification that will cut the size of your future housing outlays for the rest of the time that you live there.The second step to take now is to call a certified housing counselor for advice. There are lots of quacks working in the field today, so make sure you pick a legitimate adviser who is approved by the U.S. Department of Housing and Urban Development. Don't just take the prospective counselor's word that he or she is HUD-certified: Get a referral directly from the agency's Web site, hud.gov.Most of the services that HUD provides are free. The counselor will review your situation and discuss your options. If you choose the loan-modification route, the counselor also will help guide you through the process - whether it's a private plan offered by a bank or the various federal or state programs provided by the government.bull; For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.#169; 2010, Cowles Syndicate Inc.