When Should I Lock My Mortgage?

When refinancing or buying a home, everyone wants to get the absolute lowest rate they qualify for. Rates change daily, so with that in mind how does anyone know when the best time is to lock in their interest rate? A mortgage rate lock is an important part of the loan process and without locking the rate in, you could be subject to paying a higher rate than is necessary.

A Mortgage Rate Lock

If you don’t lock in your mortgage rate than your rate will “float”, meaning that it changes every day depending upon a variety of factors such as the stock and bond markets and recent economic news. The only way to stop your mortgage rate from going up and down is to “lock” your rate. When you lock your mortgage rate, you will select a specific amount of time for your rate to be locked – usually 7, 15 or 30 days. Once you lock your rate, you must close and your loan must fund before the end of your rate lock or the lender will penalize you with additional fees in addition to giving you the prevailing mortgage rate – which could be higher.

What to Consider When Locking a Loan

Your mortgage rate lock is comprised of three important things: the interest rate, points, and the duration of the loan lock. Each rate lock has a specific time period in which the loan should close, and if not then the rate lock will expire leaving the borrower subject to new interest rates. Borrowers may be able to get an extension on the loan lock; however extending the lock will have a fee. When a mortgage loan gets funded at a rate that is lower than what the market calls for, than the lender will lose money. This is why they charge the fee when the lock has been extended. This is why experts in the field of real estate always suggest that borrowers go ahead and get their interest rate locked in. Peace of mind is a great thing to have when making big decisions involving your home.

There really isn’t anything to lose when locking in your interest rate. While rates change on a daily basis, they have also been known to change hourly. Should you find that the rate only drops  1/8 of a point from the time you locked the loan, then there really won’t be a significant difference in the payment.