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When Should I Get a Mortgage Rate Lock?

mortgage rate lock

The ideal time to get a mortgage rate lock is when you’ve received a loan estimate from a lender offering the best terms for your financial needs. However, the coronavirus (COVID-19) outbreak has caused wild fluctuations in mortgage rates, making it more critical to lock in.

Your rate isn’t guaranteed unless you request a mortgage rate lock in writing, and the wrong decision could leave you with an unaffordable payment when you buy a home or make refinancing less beneficial.

What is a mortgage rate lock?

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

Getting a mortgage rate lock in the current financial environment

Mortgage lenders are experiencing unprecedented challenges funding home loans as the economic fallout from the COVID-19 pandemic continues. As a result, interest rates are volatile.

“Depending on a lender’s ability to get that loan through their pipeline, rates may be higher or lower, depending on which lenders you’re talking to,” said Joel Kan, associate vice president of economic and industry forecasting with the Mortgage Bankers Association (MBA).

Lenders may offer extra help by extending lock periods beyond the traditional 30- to 60-day window.

“In some cases, you’re seeing 60-day, 90-day or even more rate locks, depending on who you talk to,” Kan said. “There is some comfort in knowing if you’ve found a lender who’s willing to lock in your rate and rates go up, you’re in pretty good shape.”

Should I lock my rate today?

If you’ve compared rates with at least three to five lenders and reviewed all the closing costs on the loan estimate, it’s best to get a rate lock as soon as possible. “The speed at which rates are moving is something we haven’t seen in awhile,” Kan said. If you find the right combination of rate and costs, locking in will protect you from volatility.

In addition, there are different factors to consider if you’re buying versus refinancing a home.

If you’re buying, lock your rate if:

  • Your employment is secure. With a solid job situation, you shouldn’t have a problem getting a mortgage loan as long as the lender can verify your employment before closing.
  • Your closing date is firm. It’s easier to choose a lock period if your closing date is set and you have few, if any, contingencies. Shorter lock periods equal lower interest rates.
  • The home you’re buying doesn’t need repairs. Turnkey homes don’t typically need repairs, which gives you some timeline predictability to lock in your rate.
  • You’re ready to move in. If you can move into your home right after closing, choose a shorter lock period.
  • You sold your current home. If your current home is sold and the money is in the bank, you’re safe to lock in the rate for your next purchase without worrying about a failed home sale.
  • Your financial profile is strong. A high credit score and large down payment may speed the mortgage process up. A complicated loan file with a low credit score or a need for down payment assistance, though, may take more time.
  • You have an appraisal waiver. Lenders that use automated underwriting systems offered through Fannie Mae and Freddie Mac may offer an appraisal waiver option. Avoiding the extra time needed to schedule an appraisal can get you to the closing table faster — especially with home appraisers flooded with work.

If you’re refinancing, lock your rate if:

  • You’ll be in the house long enough to breakeven on refi costs. Lock in your rate if you plan to stay put long enough to break even on closing costs.
  • You’re eligible for a reduced-document refinance. The less paperwork required, the faster the path is to closing. This makes it easier to predict how long you should lock in your mortgage rate. Ask your loan officer if you’re eligible for the following streamline refinance options:
    • Rate-and-term conventional refinance with an appraisal waiver. Lenders may waive the appraisal on your loan if you’re applying for a conventional rate-reduction refinance.
    • FHA streamline refinance. Homeowners with loans backed by the Federal Housing Administration (FHA) may be able to lower their rate with no income verification or appraisal with an FHA streamline refinance.
    • VA IRRRL. Short for interest rate reduction refinance loan, the VA IRRRL is backed by the U.S. Department of Veterans Affairs and requires no income verification or appraisal. This program is for active-duty service members, veterans and eligible spouses with a current VA loan.
Tips if you’re refinancing to tap the equity in your home

You’ll probably need a longer-term lock period if an appraisal is required for a cash-out refinance. Lenders may skip having the inside of your home inspected for an appraisal to meet current guidelines during the coronavirus crisis, but check with your loan officer to confirm.

How do I get a mortgage rate lock?

Locking an interest rate is part of the regular mortgage process. There are three common steps to getting a mortgage rate lock:

  1. Compare loan estimates. Within three business days of receiving a loan application, lenders must provide you with a loan estimate (LE) detailing interest rates and fees.
  2. Discuss how long you should lock. Your loan officer will give you a lock recommendation based on your closing date or the type of refinance you’re applying for.
  3. Keep track of your lock expiration date. Once your rate is locked, you’ll receive an updated loan estimate with an expiration date. The cost of extending a lock in a fluctuating financial market could be very expensive and may vary from lender to lender.
What Your Mortgage Lock Expiration Means
The lender has made a commitment to honor the interest rate on your LE until that date.
There should be no variations in the locked rate unless there are changes to your application, such as a drop in your score, a lower-than-expected appraised value or a program change.
You’re responsible for providing all loan paperwork promptly to meet the expiration date.
You’ll need to sign a closing disclosure (CD) three business days before the lock expiration on a purchase.
You may have to pay a fee for a lock extension if you don’t close by the lock-in expiration date.

FAQs about mortgage rate locks

How long can you lock in a rate?
Interest rate locks are generally for periods of 30, 45 or 60 days, according to the Consumer Financial Protection Bureau (CFPB).

Do mortgage rates change daily?
Any time the financial markets change, mortgage rates are subject to change. Lenders may adjust rates several times a day or even hourly.

Who should I get mortgage rate-lock recommendations from?
Your loan officer is the best resource for when to lock in your loan. Loan officers have access to mortgage rates every day, and they can let you know about changes as they’re happening. However, don’t feel pressured into taking a rate that looks too high.

What if my mortgage lock expires before closing?
Discuss options with your loan officer as soon as possible. If the delay was due to a lender backlog, the lender should cover the cost of an extension.

What is a float-down mortgage rate?
If interest rates drop after you lock, some lenders may have policies allowing you to get a lower rate with a “float-down option.” The float-down typically comes with a fee, and is usually available only if your loan is already approved.

 

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