When is the Best Time to Lock a Mortgage Loan Interest Rate?

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You have been house hunting for months and you finally found the perfect house. Now comes the mortgage loan application and finding a good lending institution. But all the while, you have been watching the mortgage interest rates fluctuate up and down and you are wondering what will the rate be when your loan closes? What if it goes up a percent? That could cost you thousands of dollars in interest! What can you do?

Loan Lock and Locking Your Interest Rate

A loan lock is securing a specified interest rate on a mortgage loan that is in the process of being approved. A loan lock establishes the interest rate that a borrower will pay as long as the loan closes before the end of the lock period. Lock periods typically last from 30 to 60 days, though in markets where the loan approval process is slow, the lock period can last as long as 90 days.

Things to Look for When Locking Your Interest Rate

When deciding to lock a loan, there are 3 things to consider:

  1. Interest rate
  2. Points
  3. Length of the lock period

Some borrowers can pay extra for an extended loan lock. The interest rate will be a bit higher or the points will reflect the loan lock fee. That’s because the lender is taking on the risk that rates could go up while the transaction is processed, so the lender could end up losing money if the loan is funded at a lower-than-market interest rate. But locking the loan gives the borrower peace of mind and real estate experts recommend that borrowers lock their loans.

Are You Committed to the Loan Once You Lock It?

Locking your interest rate down does not mean the borrower is married to that lender. If the rates do go down, the borrower is free to go elsewhere prior to the loan closing — but they won’t tell you that upfront! Chances are, if the borrower did try to pull out on the loan, the lender would more than likely meet the demanded interest rate. Think about it, why would they want to lose the business?

Are There Any Disadvantages to a Loan Lock?

There is rarely a reason you would NOT want to lock in your loan. The main reason to lock your loan is to protect yourself against the volatility of the marketplace, and, it’s a good idea to lock your rate once you are satisfied with the rate so there are no surprises in the end.

How Are Loan Lock Rates Calculated?

It all depends on the lending institution. Let’s say, for example, one lender may have a 30-day rate lock which might cost the borrower one-half of a point; and a 60-day rate lock might cost one full point. These fees are not paid upfront but are paid at closing. So, if the loan never closes because the borrower has changed their mind or gone elsewhere, the fees are never paid. If a borrower doesn’t want to pay for the loan lock through points, the fee can be computed into the interest rate.

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