Do You Need to Lock in Your Mortgage Rate Now?

By Alvaro Moreira
5 min read

Do You Need to Lock in Your Mortgage Rate Now?

Rate locks are one of the best ways you can protect yourself against sudden mortgage rate increases.

mortgage rate

Do You Need to Lock in Your Mortgage Rate?

A mortgage rate lock is the best way to reduce the chance of experiencing severe rate fluctuations. This basically locks you into a particular rate. It is ideal for low rates, but it is likely that they will rise. A lock will protect you from future mortgage rate hikes. These are the most important things every potential homebuyer should know about rate locks, when to do it, and how long it takes.

What is a rate lock?

A mortgage rate lock protects you from higher rates due to rising rates. This is essentially a promise by a lender to deliver a certain interest rate. This is true as long as the loan application remains unchanged and you close within the deadline. If a lender offers you a rate at 4.99 with zero points for 30 days, you won’t be required to pay it as long as the loan is closed within that time period.

What is the maximum time you can lock in a rate?

Most lenders will grant you a grace period of between 15 and 60 days. Some lenders will extend this grace period to as long as 90 days. While some rate locks will provide more protection, they are generally going to be more expensive in the long-term. These rate locks will usually require higher interest rates.

When should you lock in your rates?

The majority of lenders will have different eligibility rules for rate locks. Chase bank says that some lenders will grant you a rate lock if you collect your mortgage five days before closing. To lock in a rate, most lenders will require that you have a completed sales contract.

You can lock in your interest rate once you have signed a contract for a home you are interested in buying. You can lock it in the exact moment you sign your contract so you know what you can expect to pay until closing.

Potential buyers who lock in their rate early are effectively betting that interest rates will rise soon. It’s important to be aware of the risks. You won’t be allowed to keep the property if the rate lock expires prior to closing on the property. You should speak to your lender before the rate lock expires. You should ask them if they are willing to extend your rate lock.

How to do it?

You will need to learn how to lock in your rate. Once you have been preapproved for your mortgage, the lender you choose will likely offer you a rate lock. They are always available to answer your questions. A lender will generally lock in your rate within 24hrs after your loan has been moved to the underwriting stage.

Remember that your loan estimate will state whether your rate is locked. The total cost of the lock will not be included in your loan estimate. It won’t tell you how much it will cost to extend the lock or whether it can be extended at all. It will withhold many important and relevant details that you may need. According to the Consumer Financial Protection Bureau, this is true. This is why you should ask for it in writing.

Is it free?

Many lenders charge borrowers for a rate lock. Some lenders will charge a fee to lock your rate, while others may offer it free of charge. Many of them will lock the rate into the loan, rather than charge a separate fee.

A longer rate lock will cost you more than one that is shorter. A lender might offer 3.99% for 15 days without points, or lock you in for 45 days at the same rate for $750.

You don’t pay that amount with a check. Instead, you pay the rate.

If you need to extend the lock, you will most likely have to pay a fee. These fees can vary greatly. These fees could cost as high as 1% of the total mortgage amount.

What is a Mortgage Rate Float Down Option?

This option helps protect your interest rate as well as assures that you can lower it in the event that the market falls during the lock period.

This float-down option doesn’t always work out well. It can be very difficult to get your rate reduced with some policies. It is important to read all terms and conditions. To ensure you understand the terms and conditions, you need to read them. To lock in the new rate, you need to understand exactly what the rates must fall.

It doesn’t mean you will get the lowest rates, even if you reach that threshold. If you locked them down at 4.25%, and they drop to a solid 4 percent, it is likely that you will be offered a new rate of 4.125%. Your points cost will also be adjusted.

Is it possible to walk away from it?

Even if your rate lock is in place, you can swap lenders at any time. This is a waste of time and money. You won’t get a lower rate from another lender than you would have expected. This will not be worth the effort, time and cost. This could cause significant delays in your closing process, which can lead to the demise of the entire transaction.

It could save you thousands of dollars over the lifetime of your mortgage. Consider the savings potential and weigh them when making your decision. This process might not be as simple as you think.

A broker can move your loan. This is not a problem. The market rates aren’t likely to improve in the next 30 days. This is why it might not be worthwhile. A lender can also opt out of the rate lock. They must have a good reason to do so. If there are major changes in your financial situation, or if your loan application is affected by them, they can cancel your rate lock. This could include a change in your credit score, your income, or your ability to repay the loan.

A Mortgage Rate Lock: Some pros and cons

Pros:

1. Protection

Rate locks have the main advantage of providing protection. While you wait to close, you can lock your rate so that you don’t face an increase in interest rates.

2. Budgeting

Knowing the exact rate that you will be paying will give you a better idea about how much your monthly mortgage payment will be.

3. Option to Float-Down

A float-down option may be available that allows you to benefit from lower rates, if they drop before you close.

Cons:

1. Rates could fall

It is possible that rates drop after you lock your rate. This could mean that you are paying more than if you had not locked in your rate.

2. Fees

To lock in a rate, or change it, you may need to pay a fee.

3. Float-Down may be a hassle

Your savings could be negated by the charges associated with changing your rate.

Do You Need a Mortgage Rate Lock?

Once you sign a contract, it is a good idea. This protects you against rate fluctuations. If rates decrease, you have the option to change to a lower rate. If rates rise significantly, however, you can’t go back and lock them in at a lower rate.