What To Know About Mortgage Rate Locks

 In Blog, Tips for Real Estate

Mortgage rates are constantly moving up or down through the day. This fluctuation can either save or cost you thousands of dollars over the course of your loan. Mortgage rate locks are a way to deal with this in a safe manner. 

 

 

What Is A Mortgage Rate Lock?

A mortgage rate lock is an option offered by the lender of the loan that guarantees the interest rate of your loan for a specified period of time. Obtaining this option can sometimes cost money at first. The lock time regularly stretches from initial loan approval, through processing and underwriting, to loan closing. However, it can be a lengthened period for construction loans.

 

After being approved your interest rate won’t be changed unless there are any future application detail changes. Mortgage rate lock will then prevent your interest from going up as well as going down. In some cases, you may have the one time option “float down” where you can get a lower rate. 

 

If there are changes in your application such as employment, credit score, income, or appraisals then your mortgage rate lock could be voided.

 

 

When Should You Lock A Rate?

Good luck trying to predict your homes interest rate. If you can do that then you should start writing a book or create a seminar. If you can’t then read on. You should lock your mortgage rate on a price you know works well for you and is comfortable. Lock periods can be 30 days, 60 days or longer. Select one that allows plenty of time to closing.

 

 

What Are The Possible Scenarios?

Interest rate goes up. If this happens then you can take a sigh of relief since you will be protected by your mortgage rate lock. This event is exactly what locking your mortgage rate is designed for.

Interest rate goes down. In this situation, you sometimes have the one time option of “float down” where you can meet this lower rate.

Interest rate stays the same. You might feel like you wasted money if you had to pay for a mortgage lock but that’s the price you pay to protect yourself from higher rates. It’s better safe than sorry.

 

 

What Does It Cost?

Some properties offer to lock your mortgage rate for free while others sometimes charge. The fees will vary but the standard is around .25% of your total loan value.

 

 

Is A Mortgage Rate Lock Worth It?

The benefits of locking your rate out-ways many risks especially if its a free option. A rate lock is about stopping your mortgage payment from going up due to a wave of rate hikes before your closing. Regardless, trust your decision making and know what you are capable of affording.

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