Reserving your interest rate

Interest rates are notoriously difficult to predict. Even the experts can do little more than guess when it will go up or down. Depending on your confidence in the market, you may want to lock in your interest rate before your GMAC mortgage application is processed.

Technology has made application processing faster than ever, but even the most straightforward mortgage takes some time to sort through. To help ease your mind while you wait for that final decision, GMAC mortgages come with several interest lock options.

The first, called a rate lock, does just what that term suggests: it locks in the interest rate while your GMAC mortgage is processed. If, for example, you are offered a 4.75 percent interest rate when your application is submitted, that rate will under no circumstances change. Interest rates could shoot up dramatically without affecting your mortgage. The risk, of course, is that rates could go down and you would be stuck with the higher rate.

If you anticipate a drop in interest rates, you might choose what is called a cap for your GMAC mortgage. With a cap, the amount your interest rate may inflate is limited, plus it is possible to take advantage of a rate drop. The primary disadvantage is that you must start with a rate that is higher than the market rate. While the difference is slight, it still translates to a more expensive mortgage.

If you do not choose a lock or a cap, the default option is called a float. A float involves no commitment to a certain rate, meaning that your interest rate will go up or down with the market.