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When Should I Get a Mortgage Rate Lock?

Mortgage rates change daily, and your rate isn’t guaranteed unless you request a mortgage rate lock after you sign a purchase agreement. Making the wrong rate-lock decision could leave you with a higher rate, meaning you’ll pay more interest and higher closing costs when you buy a home. 

What is a mortgage rate lock

A mortgage rate lock is a commitment from a lender that guarantees a loan interest rate for a set period of time. As long as there are no changes in the terms of the lock, your rate should be the same at closing as it was on the loan estimate.

Whether your interest rate is locked or floating, a lender must provide a written loan estimate within three business days of receiving your loan application. Choosing a floating interest rate could cost you thousands of dollars in extra interest if rates spike closer to your closing date. On the other hand, locking in too soon could cost you if rates drop or if your purchase is delayed for any reason.

When to get a mortgage rate lock on a purchase loan

The best time to lock in an interest rate on a purchase loan is when a seller has accepted your offer to buy their home and a contract has been signed. Before you tell your loan officer to hit the lock button, ask yourself these questions: 

  • When is your closing date? Longer closing dates equal higher interest rates. A 30-day rate lock won’t be valid if your closing date is 60 days out. 
  • Is the property in good condition? If the home inspection reveals major issues, you may need to delay closing while you negotiate repairs with the seller.
  • When can you move in? A 30-day rate lock may get you a lower interest rate, but that puts pressure on you to move within a short time frame. The cost of last-minute moving plans might outweigh the benefit of a short-term mortgage lock.
  • Do you need to sell your home first? Unless your current home is under contract, locking could be risky. Consider holding off on locking your rate if you need to sell your home first.
  • What type of loan approval do you have? Is your loan fully credit-approved? An underwriter might add conditions that take time to satisfy. If you just started a new job, for example, the lender might need a signed letter from your new employer verifying your start date and salary.
  • Is your loan file complicated? Complicated income or bad credit may require extra time. As a result, a longer lock period could help.
  • Are there other contingencies? A locked interest rate assumes the appraised value matches the sales price. Your final interest rate could be different if the home’s value is lower than the purchase price and the seller isn’t willing to reduce the price.

How to lock in a mortgage rate

Locking in a mortgage takes a simple email or phone call. But there are some steps to consider as you make the final lock or float decision.

  • Get a loan estimate from your lender. Your lender will generate a loan estimate confirming the proposed interest rate and interest costs before you lock in your rate. 
  • Discuss how long you should lock in. Ask your loan officer for guidance based on your loan type and the loan’s approval status.
  • Discuss mortgage float-down options. Most lenders have policies in place to take advantage of falling rates even if you’re locked. The float-down may come at a cost, but the rate-lock fee may be worth it to snag a lower rate if rates fall.
  • Write down your lock expiration date. Once your loan is locked, you’ll get a revised loan estimate with the new lock expiration date. Some lenders will send a separate rate lock disclosure. Keep track of your loan’s status as the expiration date approaches. 
  • Know what the lock expiration date means. The lock expiration date is important for a few reasons:
    • It commits the lender to honoring your rate and costs until that date.
    • The rate shouldn’t change unless there’s an update to your loan application.
    • You’ll need to sign a closing disclosure three business days before the expiration date.

How long can you lock in a mortgage rate?

Mortgage rate locks are typically 30, 45 or 60 days. Some programs allow you to lock for longer periods, but you may pay an upfront fee.

If your home is being built, your lender may offer a construction loan rate-lock program to protect you from increases during construction. As the home approaches completion, you can switch to a shorter-term, lock-in price. If rates have dropped since the building began, you may be able to take advantage of a float-down to lower rates.

The graph below shows the impact rising rates had on a 30-year fixed mortgage loan amount of $250,000 from Jan. 4, 2018 to Feb. 22, 2018, based on data from Freddie Mac’s Primary Mortgage Market Survey (PMMS). 

       30-Year Fixed Mortgage Rates Jan. 4, 2018 – Feb. 22, 2018
Date *Interest Rate **Monthly Payment Lifetime Interest Charge
Jan. 4, 2018 3.95% $1,186.34 $177,083.51
Jan. 11, 2018 3.99% $1,192.10 $179,155.07
Jan. 18, 2018 4.04% $1,199.31 $181,751.80
Jan. 25, 2018 4.15% $1,215.26 $187,492.99
Feb. 1, 2018 4.22% $1,225.46 $191,166.68
Feb. 8, 2018 4.32% $1,240.12 $196,441.88
Feb. 15, 2018 4.32% $1,248.95 $199,622.19
Feb. 22, 2018 4.40% $1,251.90 $200,684.82

Source: Freddie Mac PMMMS from Jan. 4 to Feb. 22, 2018
**Principal and interest payment only. Does not include property taxes, mortgage insurance, homeowners insurance or HOA fees.

A borrower who decided to float their rate on Jan. 4 would’ve had a monthly mortgage payment that was $65.56 higher by Feb. 22. That might seem small, however, over the life of the loan, it adds up to an extra $23,601.31 in interest charges. 

FAQs about mortgage rate locks

Does locking commit you to a lender? Yes. Rate locks are not transferable to other lenders. 

What about changing lenders after you lock? If you take this route, you’ll need to get a new approval, new credit report and, possibly, a new home appraisal. It’s probably not worth starting over if your closing date is near. 

What if my mortgage rate expires before closing? Lender extension and relock policies vary, so discuss with your loan officer. 

How much does a rate lock cost? If you’re comparison shopping, find a lender that doesn’t charge an upfront fee for a rate lock of 60 days or less. Mortgage rate lock fees are different from lender to lender. 

What is a mortgage float-down? If rates drop after your loan is locked, you could benefit from current rates if your lender offers a mortgage float-down option. 

Can I lock a rate before an appraisal? Yes. However, if the appraisal comes back low, your mortgage rate lock could change. 

Can my mortgage rate lock change? Yes, if a parameter of your loan changes. For example, if your credit score drops, the appraisal comes in low or you switch loan programs, the rate lock could change. 

 

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