Mortgage Rate Locks

How Long Should I Lock?

When shopping for a mortgage one of the questions you will contemplate may be how long you should lock the mortgage rate. Obviously, one of the considerations would be how busy the lenders and real estate office are that you're dealing with because the busier they are, the longer it will take to close. If you decide to lock a rate, take the advice of the lender or broker and lock in for the suggested number of days, and remember that when you lock in an interest rate on a mortgage, a spoken commitment is worth the paper it's printed on. Be sure to get your rate lock in writing, in the form of a loan commitment from the lender.

Misunderstandings about rate locks can bring a borrower some serious grief. Sneaky loan providers or confusing a rate quote with a rate lock can end up costing a borrower a lot of money. With mortgage rates fluctuating consistently, it can be a tense time trying to decide whether to lock in right away or wait until you're closer to closing.

What Is A Rate Lock?

A rate lock is a legal commitment between a borrower and a lender wherein the lender promises to lock in the interest rate of the loan at a specific percentage. Generally, if the lock is for a longer period than 30 days, the borrower will have to pay to have the interest rate locked in and the payment is in points and fees. The borrower, lender and mortgage broker (if there is one) all agree to do what they can to ensure the closing takes place by a certain date. If the deadline isn't met, the contract expires. Typically, locks are for 30, 45, 60 days or more and the longer you lock for, the more likely you will have to pay a fee to be able to take advantage of the lock.

An interest rate lock is something of a guarantee to ensure that you will be able to get your loan at a specific rate, even if interest rates go up over the period of time you are locked. On the other side of the matter, the lender stands to benefit as well since you agree to a rate even if the interest rates drop.

How Do You Know?

So, how do you know if you should lock the rate? The truth is that there is no formula, it is guesswork at best. The factors that go into the mix include knowing how much you will have to pay to lock, how long you plan to have the mortgage and what you guess will happen to the rates. You can be pretty well answer two of the factors, but what will happen to rates is anybody's guess.

This Could Cost You

Often lenders don't charge to lock within 30 days of closing and will charge for a longer period than 30 days. Since rates aren't standardized they can vary from lender to lender and type to type of loan. The fee is usually expressed in points with one point being equal to one percent of the loan amount. The general fee is from one quarter to one-half a point for more than 30 days. The lender may feel generous and give you a "float down" which is a one-time deal that if the rates drop within 30 days of closing he'll give you the lower rate.

When to Lock the Rate

The time to lock in a rate is when mortgage rates are in an upward trend - you're taking a risk if you float. However, the risk isn't too big because mortgage rates fluctuation constantly, sometimes hour by hour. The most important aspect of locking in is demanding a loan-commitment letter as soon as possible after you lock. The letter should have your name, the lender's name; it should specify the interest rate, points and rate-lock fees, the date the rate was locked and the period of time it will be locked.