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 and even 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 and hang onto it. A difference of even a fraction of a percentage point can affect 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.
How Does A Mortgage Rate Lock Work?
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. For instance, if you lock in your rate and interest rates go up during your lock period, you get to keep your lower rate.
Conversely, if you lock in your rate and interest rates go down, you won’t get the lower rate unless your rate lock includes a float down option. For an extra cost, a float down option allows you to take a lower rate if they go down, while still being protected from rate increases.
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.
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 a reliable estimate for this. If you only have a lock period of 30 days and you anticipate the closing process will take longer, you should talk to your lender about extension options.
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 policies 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 timely coordination of multiple parties, and sometimes the process hits speed bumps.
If you anticipate the process running past your rate-lock expiration date, contact your lender and ask for an extension. The lender may charge you, but the extra cost 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 some 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 about float down options.
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.
Lock Your Rate With RateShield℠
Clients who get approved through Rocket Mortgage®have the option to lock their rate with RateShield℠ Approval. RateShield℠allows you to lock your rate for up to 90 days while you shop for a home. Not only that, but if rates go down while you’re home shopping, we’ll lower your rate.
When you’re ready to get started, apply online or talk to one of our Home Loan Experts at (800) 785-4788.
RateShield Approval locks your initial interest rate for up to 90 days on 30-year conventional, FHA and VA fixed-rate purchase loan products. Your exact interest rate will depend on the date you lock your rate. Once you submit your signed purchase agreement, we’ll compare your rate to our published rates for that date and re-lock your interest rate at the lower of the two rates for an additional 40 to 60 days. Quicken Loans reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Quicken Loans. This is not a commitment to lend. Additional conditions or exclusions may apply.