Rising Interest Spurs Early Lock-In of Mortgage Rates : Financing: Market’s volatility fuels home buyers’ sense of urgency to freeze loan values.

Last summer, shopping for a mortgage was like strolling through a crowded bazaar. Never before had there been so many loan options with such attractive interest rates from which to choose.

Today, the task is more akin to visiting a toy store Christmas Eve.

Although the market remains largely competitive, a precipitous rise in interest rates due to inflation fears has forced most borrowers to grab the best rate available as soon as possible. Some are securing a mortgage even before they’ve located a home.

“Last year, if people didn’t lock in right away, they often benefited . . . because they probably saw rates decline before they closed on their mortgage,” said Gregory Samp, president and chief operating officer for Sibley Corp., a mortgage banker based in Rochester, N.Y.

“This year, market volatility continues to inch rates upwards, so there’s a lot more urgency on the part of the home buyer to lock in,” Samp said. “Chances are, in the next 60 days, it (the rate) could be worse than now.”

Depending on the lender, borrowers can lock in the prevailing interest rate and certain loan terms for a few days to a few months and usually at any time during the application process. They must, however, close on the mortgage before the lock-in expires or they lose the preset rate.

Some lenders charge a lock-in fee--usually up to one point, or 1% of the loan amount. This fee often is credited toward closing costs. However, increased competition for fewer customers this year has forced most lenders to provide the service for free.

Sibley is one of them. It allows certain customers to lock in a mortgage rate for up to 150 days--far beyond the average 30- to 60-day lock-in time.

Many lenders are also offering 30-day lock-ins before borrowers have located a home to finance. The lock-and-shop program, which started in California about a year ago, is being done as customers are prequalified for a loan.

“It’s a very competitive world,” said Samp. “There are 30% more people in the business now than in 1991 . . . because of the ‘92-93 business boom.”

At the same time, business is down substantially from a year ago.

Brian Chappelle, a vice president at the Mortgage Bankers Assn. in Washington, said this summer’s mortgage activity is off by about 50% because of the higher rates.

Mortgage volume had reached a record high of $1.1 trillion in 1993, buoyed by heavy demand from homeowners wanting to refinance their old mortgages with loans carrying lower rates. Volume this year is expected to total $700 billion, said Chappelle.

“The refinancing market was the force behind last year’s business boom. It has virtually dried up this year,” he said.

The Federal Reserve has been pushing rates higher to help control inflation. Lenders have followed suit by increasing a variety of consumer loans, including mortgages.

Some economists predict 30-year fixed-rate mortgages will hit 9% before the end of the year. They’re now at a two-year high of between 8.5% and 8.75%. Last summer, they averaged between 7% and 7.5%, before dipping to a 28-year low of 6.8% in October.

“I’ve been surprised at how fast long-term rates have gone up,” said Robert Van Order, chief economist for the Federal Home Loan Mortgage Co., or Freddie Mac.

Stanley Duobinis, director of economic forecasting for the National Assn. of Home Builders, says many borrowers are making do by opting for adjustable rate mortgages over fixed-rate loans. Most one-year ARMs, for example, are in the 5% range for the first year. (They’re usually adjusted up or down a maximum of two percentage points each year, with a cap of six percentage points over the life of the loan.)

Lock-ins have also been extended to ARMs. Some lenders will allow ARM customers to lock in one rate, then switch to another should interest rates drop before the closing date.