Mortgage interest rates can change on a daily basis. That’s just the nature of the market. When you find a mortgage at a great price, it may be in your best interest to commit before the rate moves.
In this post, we’ll explain the purpose of locking in your rate. We’ll also discuss its possible benefits and a few things you need to know before moving forward.
What is a Rate Lock?
A rate lock is when your mortgage lender will guarantee a rate for a certain amount of time. The rate lock protects you from fluctuations that can happen in the market. Keep in mind, the rate you’re pre-approved for isn’t automatically set in stone. You need to ask your lender about possibly locking in the rate which may cost a fee. Usually, a rate lock expires after 30, 45, or 60 days. However, there may be instances where you’re able to lock in the rate for a longer period.
Potential Benefits of a Rate Lock
The major potential advantage of locking in a rate is that if rates rise, your rate will remain the same for the duration of the lock period subject to the terms of your specific rate lock agreement. Even a locked-in rate can move during loan processing if there are significant adjustments to your mortgage application such as a change to your mortgage product, income, or credit. Rate lock policies vary from lender to lender. For this reason, be sure to ask your loan officer questions to clarify rate lock terms. Our loan officers are happy to explain the conditions of locking in your rate with us.
What You Need to Know Before Locking in a Rate
One major potential drawback of locking in a rate is the possibility that rates will decrease afterward. In this situation, you may have to pay a fee to float down your rate unless your agreement allows you to float down at no cost. Some home buyers choose to leave their rate floating until later in the loan process instead of locking in right away. Ultimately, the perfect time to lock in a rate will depend on your circumstances. You can review market rate projections from credible sources to help you make a decision on whether to lock in now or later. However, betting on a rate decrease sometime in the future can be risky if you already have a pretty good deal. Also, be aware that market projections are simply estimates and can be wrong.
Another rate lock condition to be mindful of is the expiration date. Your rate may expire before closing if something causes a delay in loan processing. The best advice we can give here is to be realistic about how long it will take to go through each step necessary to buy a home. Having to extend your lock may cost a re-lock fee. There’s also a chance you can miss out on the rate entirely when it expires. Work closely with your loan officer to decide when the right time is to lock in based on the nuances of your home buying situation.
*Lock options are subject to borrower and property eligibility. An upfront fee is required and applied to closing costs for all long-term rate lock opportunities. If the borrower does not close with ACM under the program locked, they forfeit this fee.