Rate locks when rates are rising

If you’re ready to apply for a home loan, but are concerned that interest rates might go up before your loan closes, a rate lock might be just what you need.

A rate lock puts a hold on your interest rate for a set period of time, though you’ll still have to qualify for the loan to receive that rate.

If you expect your loan to close quickly and you’re willing to take a chance that interest rates might go up, a lock might not be important to you. But if there could be a delay before your loan closes or you couldn’t afford the loan if the rate went up, a lock might be a smart precaution. Ask your loan officer to help you weigh the pros and cons and decide when to lock your rate, if at all.

Some lenders will lock your rate when you submit your application. Others will float the rate until your loan is approved or even longer, unless you purchase a lock.

Don’t confuse a rate lock with a fixed-rate loan. A lock holds the rate while your loan is being processed. It doesn’t mean your rate can’t change after your loan is funded.

If you want to consider a lock, be sure to ask these questions:

Does the lock apply to the interest rate and points?
A "point" is a fee that’s equal to 1 percent of the loan amount. Some borrowers "pay points" to reduce the interest rate on their loan. A lock should cover both the rate and points.

When will the lock expire?
A typical rate lock is good for 30 days, but a longer or shorter period might be appropriate, depending on how soon you expect your loan to close. Most lenders charge a higher fee to lock your rate for a longer time. If you don’t want to take any chance that your rate might increase, err on the side of caution and get a longer lock.

Can the rate float down?
One disadvantage of a rate lock is that if you lock your rate and then the interest rate goes down, the lender might not give you that lower rate. Some lenders allow a one-time float downward after the rate is locked.

If a rate lock is important to you, be sure to work with a reputable lender who will honor that commitment and process your loan in a timely manner. Insist that the terms of the lock be put in writing, and keep in close contact with your loan officer to make sure your loan will close before your lock expires.

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