When should you lock your mortgage rate?
By: Robert Davis
You’ve found the home of your dreams, the seller has accepted your offer and your loan application is being processed. When is the best time to “lock” your mortgage rate? And for how long should your lock be effective? If you’re buying or building a home, you’ll have to answer both of these questions.
Mortgage rates can vary from day to day and even hour to hour. They are influenced by what’s going on in the overall economy, actions taken by the Federal Reserve, demand for mortgages and a host of other factors. When you lock your mortgage rate, you are committing to that specific rate. Once your mortgage rate is locked, it won’t change, provided you close within a specified time frame and there are no changes to your loan application or financial situation.
So, when should you lock your mortgage rate and for how long? There’s not a one-size-fits-all answer. That’s why you’ll want to work closely with your loan officer to determine the timing of your rate lock. With an existing home, many buyers wait until after the seller has accepted their offer and they have a signed purchase agreement to lock in their rate. With a new home that could take months to build, deciding when to lock in your rate gets a bit trickier. You’ll want to discuss the matter with your builder and lender before making the decision. Rate locks can be confusing (and stressful when rates are bouncing around a lot). Don’t be afraid to ask questions so that you fully understand how they work in your specific situation.
You don’t want to lock your rate too early — if your loan doesn’t process and close within your lock period, you’ll lose the rate. Part of the decision of when to lock in a rate depends on how long your lock will be effective. Most locks range from as little as 15 days to as long as 60+ days; 30 days is typical. Longer locks may come with added fees.
Loan lock provisions can vary, so make sure you understand your own. When is the effective date of your lock and the lock expiration date? How long does it last? Read the fine print and ask for clarification if there’s something you don’t understand. Do you know what happens if there’s a delay and you aren’t able to close on your home before your lock expires? What happens if mortgage rates go down while you’ve locked your rate? What happens if they go up? More questions? Just ask!