What Is A Mortgage Rate Lock?
A mortgage rate lock (also called a lock-in rate) means that you can be sure that your interest rate won’t rise or fall on your mortgage loan between your offer and your closing. The catch: you have to close within a specified time frame and your application cannot change in any way.
Keep in mind that mortgage rates can change daily; in fact sometimes they can rise and fall multiple times throughout the day. Locking in your rate can protect you from rising interest rates for as long as a typical rate lock is available: 30, 45 or 60 days. Sometimes you can find a lock that has an even longer life.
It’s pretty clear why this is an advantage — you’re securing yourself against the uncertainty of how interest rates change. You’ll already know ahead of time what your interest rate will be.
Of course, it’s not always good news — what if interest rates fall lower after you lock in your rate? It’s definitely a gamble. And if your closing is delayed due to further negotiations, — or inspections or loan amount — you may be charged a fee for extending your lock.
Changes in your application may cause your rate to unlock; for instance, a change in your credit score or your income. You could also apply for a different type of loan, which could alter your original lock-in agreement.
Why a typical lock-in rate lasts 30-60 days:
This usually covers the period necessary to complete the loan application and have it processed. If it’s a short-lock period, it should expire after the approval of the loan.
How to feel secure about your lock in rate:
- Find out how long you have to keep the lock. Exactly when does it expire?
- Do you have an option to opt out of the lock-in rate?
- Are there any fees attached?
- Will you get a higher rate if you don’t agree to a lock-in rate? If so, how high?
- Ask about other lock-in rates (shorter or longer rate locks)
- If it’s a short lock-in rate, how will that affect you and your closing?
- What happens if your closing is delayed? Do you have any recourse?
- Be clear of all conditions attached to your lock-in rate.
- Is there any room for negotiation if interest rates go down during the course of the lock-in rate?
Warning: ask if the lender is including a “cap” on the agreement. This means that the rate that was guaranteed to you can still rise to a certain rate before settlement. This is usually connected to rising interest rates, and the cap limits the amount your interest rate could rise.
Consider this technical term: a float-down provision, which allows you an option to lock in a newer rate if interest rates decrease. This may also include additional charges.
A mortgage rate lock guarantees a rate of interest on your home loan while you are proceeding through your closing. It’s meant to protect you from potentially rising rates during a certain period stated in the contract. A typical mortgage rate lock lasts 30-60 days, but there are exceptions. Make sure you are aware of all requirements and options and are very clear how you may benefit or be penalized upon signing the agreement.