Should you lock in a mortgage rate today?

Mortgage rates are low but expected to rise, and a mortgage rate lock can protect your interest rate from fluctuations before closing. Here’s what homebuyers need to know about how mortgage rate locks work, when to lock a rate, how long rate locks last and more.

What is a mortgage rate lock?

A mortgage rate lock protects your mortgage against rising interest rates before closing. It’s a promise from a lender to provide an interest rate, as long as your loan application doesn’t change and you close on time.

“If the lender promises you 3.99% for zero points for 30 days, as long as the loan closes in 30 days, you’ll get that rate at that price,” says Matt Gougé, mortgage broker at UMortgage California in Sacramento.

How long can you lock in a mortgage rate?

Most lenders will allow you to lock in your mortgage rate for 15, 30, 45 or 60 days. Even 90 days is relatively common, Gougé says.

You may be able to find 180- or 360-day mortgage rate locks, but Gougé warns that extended rate locks may come with higher rates or require a higher point cost.

When to lock in a mortgage rate

Lenders have different rules as to when you can lock in a mortgage rate. According to Chase Bank, you may be able to get a rate lock from the time you select your mortgage until five days before closing.

Most lenders require a bill of sale in place to lock in a rate, says Dave Krichmar, a Houston mortgage broker.

“Once you’ve made a contract on a house, you can lock in your interest rate,” Krichmar says. “Which means when you lock in your rate that day, that will be your rate until the close.”

Buyers who lock in their rate early expect interest rates to rise soon. But keep in mind that an early lock-in risks the rate lock-in expiring before the close. Talk to your lender before the lockdown expires to see if you can pay to extend it.

How to lock in a rate

Note that your loan estimate will indicate whether your mortgage rate is locked, but will not include the cost of locking, extension fees and other important details, according to the Consumer Financial Protection Bureau. You will need to request this information from your lender.

Is a rate lock free?

Some lenders charge borrowers for rate locks, and others offer them for free. Most lenders build the cost of a rate lock into your loan instead of charging you for it separately.

A longer rate lock is more expensive than a short one. For example, your lender may offer you 3.99% for 30 days with no points or the same rate locked in for 45 days at a points cost of $750.

“You don’t write a check for that cost,” Gougé says. “It comes out as the cost of the rate.”

You can pay a fee if you need to extend your rate lock period. Extension fees, when charged, vary widely but can be as high as 1% of your loan amount.

What is a floating mortgage rate option?

A floating option not only protects your interest rate, but also offers the option of lowering it if market rates drop by a certain amount during the lock-in period.

However, a float down is not necessarily a slam dunk, as some policies make it difficult to get a lower rate. Read the fine print of your floating contract. You will need to know how many rates need to drop to lock in the new rate.

Even if you reach this threshold, you are not guaranteed to benefit from floor rates in a floating situation. If you stuck at 4.25% and rates have fallen to 4%, for example, the lender may offer 4.125% and adjust the cost of your points.

Can you walk away from a rate lock?

Even with a rate lock, you can still switch lenders. However, changing lenders can waste time and money. Another lender’s new rate may not be low enough to warrant the hassle if you are well into the mortgage process. You could even delay the closing, which could jeopardize your contract of sale.

At the same time, transferring your loan could save you thousands of dollars over the life of your mortgage. And that might not be as big of a downside as you think.

“From a broker’s perspective, we can transfer your loan, so there’s really nothing to worry about,” says Gougé. But market rates rarely improve enough over a 30-day period to warrant a change in lender, he says.

On the other hand, a lender may walk away from your rate lock – but not without good reason. Your rate lock may be canceled due to changes in your financial situation or loan application. Maybe something has changed with your property valuation, credit score, income, or the loan itself, such as the repayment term or mortgage type.

Advantages and disadvantages of a rate lock

Benefits

  • A rate lock can protect you from interest rate increases for a period of time.
  • This helps you budget because you know your exact monthly mortgage payment.
  • Your lock may have a floating option to take advantage of lower rates that may become available.

The inconvenients

  • Interest rates may drop once you lock in your rate.
  • Some lenders charge for rate locks.
  • The savings could be negated by the additional cost of a floating option.

Should you lock in a rate?

Lock in your mortgage rate as soon as you have a signed sales contract. You can always switch to a lower rate if better deals appear, but you can’t go back and lock something in if rates go up.

Gougé’s advice? “If you like it, lock it up,” he says.

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