When to lock in your mortgage rate (or whether you should) depends on the rate market and your own personal situation. If we look at the market we’ll see that mortgage rates have been hovering at 2014 lows, just coming up from an all time low for the year in mid-October. That’s why a lot of real estate professionals are talking about ‘locking in a rate’ now. But what exactly does that entail?
Here are some commonly asked questions and the answers so you can make the right decision when it comes to your mortgage loan. Whether you lock in your rate now or wait, here’s what you need to know.
What is a rate lock?
A rate lock from a mortgage lender is a guarantee that you (the mortgage loan applicant) will receive a specific interest rate, at a specific price, for a certain time period. With a rate lock, you protect yourself from rising interest rates while you’re going through the loan process.
When can you lock in a rate?
The earliest you can lock in a rate is after your initial loan approval. However, most people wait until they have signed a purchase agreement on a property (this is what we suggest).
If you lock in a rate and you haven’t signed a purchase agreement with a seller, then chances are you won’t close on time for that locked rate.
How long does the rate lock last?
That depends on the deal you make with your lender, however longer rate locks are generally more costly. Commonly a rate lock is good for 30, 45 or 60 days, however the time period can be longer or shorter depending on the lender. For example a lender may offer a 30-day lock with zero points and a 60-day lock may cost 1 point.
What happens if you lock in a rate too early?
There is a possibility that rates will drop, your offer will take longer than expected to be accepted or the loan process runs long. In these instances you could pay more if you’ve already locked a rate in and you want to pay extra to extend your lock. To give yourself enough time, ask your lender for the average loan processing time and try to get your lock-in for as long as possible.
Usually if you aren’t able to close within the lock period, you will be charged for a re-lock (commonly the worst price between your original lock and the current market interest rate).
When’s the best time to lock your mortgage rate?
Although it ultimately depends on individual circumstances, it makes sense for most people to lock in a rate after they’ve signed a purchase agreement on a new home. Working closely with a loan officer or financial advisor to make that decision is the best way to find your own personal sweet spot.
