17 Reasons Why You Should Lock the Rate on Your Mortgage When Buying a Home

Written by James Swift

Any homebuyer who is applying for a mortgage will have the opportunity during processing to lock their interest rate.

A rate lock is a written guarantee from the lender that you will get a certain interest rate and at a certain price for a certain time period. The price for the loan is usually expressed in points that are paid for you to get a certain interest rate. Points essentially are prepaid interest, so the more points paid, the lower your rate.

A rate lock is important when buying a home because it shields you from increasing interest rates. So, if you lock in your interest rate at 4%, you will only have to pay 4% even if the rates go up as you are going through the paperwork process.

Your rate lock typically is good for 30, 45, or even 60 days. The timing can vary. After that period of time is up, you are no longer guaranteed a certain rate, unless the lender agrees to extend it.

What If the Rate Goes Up or Down?

After you lock in your interest rate, you are not affected. You will pay the rate that was locked in. However, if you lock the rate and the rates then drop, you probably will not be able to get a lower rate for your mortgage loan. You will have to pay the higher rate that has been locked in. There are a few exceptions, however:

• If you have a float down provision – which states that if rates drop when you are locked in – you can get the lower rate – you should be able to get a lower rate. However, this provision is expensive and you should think carefully before insisting upon it.
• You may rewrite the loan lock so that it has the new, lower rate, but this also can be expensive.

When to Lock the Interest Rate?

For most buyers, it is logical to sign the purchase agreement on a property before you lock the rate. Next, you need to find a loan with a low interest rate and then think about asking the lender to lock your rate. But before you lock in, consider these factors:

• Do not lock in your rate too early because rate locks usually only last 60 days at best, and often less. If your loan does not process in that timeframe, you lose the rate lock.
• Be sure that the duration of the lock in will give your lender enough time to process your mortgage loan. Ask your lender how loan it takes to process the average loan, then try to get the lender to lock in the rate for as long as they allow.

Choose a Longer Rate Lock Period?

Generally, homebuyers should select a longer rate lock timeframe (which range usually from 30-60 days) to make sure that they can get the desired rate even if the loan takes longer to process. But there are things to consider:

If you choose a rate lock with a longer period, such as 90 days if it is available, the rate will not be as good as with a shorter lock period. Or, the lender could charge a fee for the 90 period. Usually, if the loan will not close in the lock period, you will be charged a high price for a re-lock. You should ask your mortgage lender to clearly lay out any differences in rates and costs for different lock periods.

What Does It Cost for a Rate Lock?

Some rate locks will cost you and some do not. Some lenders may charge a flat fee for a rate lock. Or, they may charge a percentage of the total loan amount. Fees can be refundable or non-refundable. Usually, short term locks less than 60 days are at no charge, or might cost a few hundred dollars. Lenders will charge more for a longer rate lock. Be certain to ask your lender about fees for locking rates.

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