Picture this: You’re all set up with a great rate on your mortgage, ready to close on your dream home with a nice, low monthly payment, only to find out that the rate you’d been banking on has gone up. What gives?
Mortgage rates change a lot – they move up and down from day to day, even from hour to hour. Because of this, the rate you’re given when you first apply for a mortgage might not be the one you end up with, unless you get a mortgage rate lock.
Your mortgage rate affects your monthly payments, so it’s important to find the lowest rate you can get and hang onto it once you find it. A difference of even a fraction of a percentage point can make an impact on how much you end up paying over the life of the loan.
Want to learn how to keep your rate? Here’s what you need to know about mortgage rate locks.
What Is a Mortgage Rate Lock?
A rate-lock agreement is a guarantee that the rate you’re given for your loan will stay the same until closing, regardless of market movement. So, if you lock in your rate and interest rates go up during your lock period, you get to keep your lower rate.
However, if you lock in your rate and interest rates go down, you won’t be able to enjoy the lower rate unless your rate lock includes a float down option, which allows you to take a lower rate if rates go down (but still protects you from rate increases). You’ll have to pay extra for a float down option.
A rate lock provides security. While you may not end up getting the best rate possible, locking in your rate can provide the peace of mind that you won’t end up with a higher rate than the one you originally received.
When Should You Lock Your Mortgage Rate?
If you’ve received a rate you’re comfortable with and know you can afford, your best bet is to count your blessings and lock it in.
You might be tempted to wait it out and see if you can get a lower rate before locking in. However, the risk that comes with that likely won’t be worth the potential savings, especially since rates have been steadily rising.
How Long Can You Lock Your Rate For?
Rate locks are usually good for 30 – 60 days, according to Bankrate.com. Depending on your lender, you may have to pay to extend the rate-lock period beyond that.
You should be mindful of how long you think it will take you to close when you lock your rate. Your lender will be able to provide you with a reliable estimate for this. If you only have a lock period of 30 days and you anticipate the closing process to take longer than that, you should talk to your lender about what your options are.
What Happens When Your Rate Lock Expires?
When your rate-lock period expires, you’ll likely either have to pay to extend it or you’ll take on whatever the current rate is. However, you should talk to your lender in advance about what their policies are regarding rate-lock expirations.
To avoid this situation, make sure to stay on top of your responsibilities in the process. This means sending in all the necessary forms and paperwork in a timely manner, rather than waiting until the last minute.
You might not be able to control whether you can close on a home before your rate lock expires. A successfully processed mortgage requires the timely coordination of multiple parties, and sometimes the process can hit speed bumps that cause it to take longer than expected.
If you anticipate the process running past your rate-lock expiration date, contact your lender and ask if they can offer an extension. The lender may charge you for this; however, it can be worth it if it means keeping your monthly payments low.
The length of time may also depend on what state you live in, as certain states have longer than average turnaround times. If this is the case, your lender may automatically extend your rate-lock period.
Is It Worth It?
It can be, depending on the cost and what rates are doing.
Talk to your lender and find out exactly what their rate-lock policy is. Ask what it would cost to extend the period and what would happen if you face delays and your rate lock expires. If you’re interested, ask them if they offer a float down option.
In general, the security of protecting yourself from any rate spikes will be worth it. It’s hard to time the market to perfectly suit your needs. Turning your mortgage process into a game of trying to get the lowest possible rate is risky, and you could end up losing a comfortable rate that made sense for you.
If you’re ready to get started, you can apply online or talk to one of our Home Loan Experts at (800) 785-4788. Still have questions? Let us know in the comments below.
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