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When To Lock Your Mortgage Rate

tl;dr

What You Need To Know

  • Mortgage rates can go up while your loan application is processing
  • No one can predict if mortgage rates will go down
  • Mortgage rate locks protect your buying power

Contents

It would be a major bummer if the interest rates set by the Federal Reserve shot up during closing and your payments for your dream home became unaffordable. With interest rates being very unpredictable, even the slightest bump in rates could impact your final purchase price, even if you started the home buying process a month before.

Luckily, you can secure a low interest rate with your mortgage lender to prevent any sudden changes from impacting your dream house purchase. You can ensure you’re getting the cheapest deal on your mortgage loan, keeping more money in your pocket to go toward fun and goals inside and outside of your abode.

What Is A Mortgage Rate Lock: Your Question, Answered

A mortgage rate lock ensures that your interest rate won’t change between the offer and closing stages of your loan, as long as you close during the specified time frame of your lock-in and have no application changes.

What Affects Mortgage Rates: The Factors

  • Credit score: Your credit score tells lenders whether they can count on you to make your payments on time
  • Home location: Homes in different areas can have varied interest rates
  • Down payment: The bigger your down payment, the lower your interest rate
  • Loan term: A 15-year mortgage will have a lower interest rate than a 30-year
  • Interest rate type: Adjustable rates follow the market, while fixed rates don’t budge
  • Loan type: VA and FHA loans have a lower risk to lenders, which lowers the rate
  • Points/fees: Points are like a down payment on the interest that goes directly to the lender and lowers your rate

Other factors that can affect mortgage rates include changes in the federal funds rate, market fluctuations in mortgage-backed securities, the state of the economy, inflation, mortgage demand and ZoMbiE ApOcALyPsEs (we all know one is coming!). Mortgage interest rates can even change from hour to hour.

How Long Can You Lock In a Mortgage Rate: Time Periods

Mortgage lock periods depend on the lender, your location and your loan type but can be for 10, 30, 45 or 60 days.

Shorter lock periods usually mean a lower interest rate because there’s less chance for market fluctuations. But they can also expire and leave you at the mercy of the current market rate unless your lender agrees to grant an extension.

You’re better off with a longer mortgage lock period that offers a little wiggle room for application processing delays.

How Does A Mortgage Lock Work?

You’ll have the opportunity to lock your mortgage rate when you receive your loan offer. If your lender doesn’t offer a mortgage lock, ask for one.

You can also ask for a “float down” option, which gives you a one-time chance to snag a lower interest rate during your lock period but still protects you from increases. A lender may also include a cap, which permits the rate to increase but up to a predetermined limit.

Even without a “float down” option, you can ask your lender to rewrite the rate lock at an additional cost if the rate drops enough where it makes sense to do that, so you don’t have to just sit and cry if you see an uber low rate.

The good news is that if the rate goes up while your rate is locked, your loan won’t be affected.

Should I Lock My Mortgage Rate: It’s Up To You

When you lock your mortgage rate, it’s sort of like getting mortgage interest rate insurance. Like all insurance, you spend money protecting yourself against something that you hope doesn’t happen.

If the rate doesn’t increase, you’ve really just paid for peace of mind. But sometimes peace of mind is #Goals. Without having to worry about a sudden rate increase, you can focus on other aspects of your home purchase, like figuring out which bathroom mirror in your new house is the best one for filming TikToks.

When To Lock Your Mortgage Rate: When It Works For You

Deciding whether you should lock your mortgage rate is a bit of a “bird in the hand” scenario, except what’s in the bush could be two birds, one bird or no birds. You don’t know if rates will go up or down, and even experts can’t make reliable predictions. Getting mortgage rate forecasts and updates is smart, but the best time to lock in a mortgage rate is when it’s the best for you.

It’s The ‘Peace of Mind’ For Me

Mortgage rate locks are the smart way to go when it comes to homebuying or refinancing. First-time homebuyers can save thousands in the life of their loans by locking in a great rate.

#icymi

In Case You Missed It

Take-aways

  1. If your lender doesn't offer a mortgage lock, ask for one
  2. A "float down" option lets you change to a lower rate but protects against increases
  3. Make sure your lock period is long enough to allow for processing delays

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