Here is exactly what you need to know about when and how to lock-in your mortgage interest rate.
A mortgage interest rate-lock is when your lender commits (in writing) to give you your mortgage at a given rate, even if market rates rise before the loan is funded. They are taking a risk, so they charge a fee of anywhere from 1/8-1/2 of a point for the security. A “point” is a one percentage of the amount of the mortgage. Shorter locks (15-30 days) are more expensive than longer locks.
You don’t have to lock-in your rate. Many buyers don’t and that’s perfectly fine. However, if you really need to ensure a cap to afford the home, or you are worried that even a slight rise in rates would make you unhappy, then you should strongly consider paying a little extra to lock-in your interest rate.
Step 1: Get a House Under Contract (this is getting harder and harder recently).
Don’t even worry about locking in your interest rate until you’ve secured a property.
Step 2: Price it Out.
Ask your lender for a quote to lock-in your interest rate through the close of your transaction, adding a little extra time for possible delays. 30-45 day locks are the most common.
Remember, they are “selling” you an extra feature. It’s not as bad as undercoating on a car, but it is an optional add-on. Be sure all of your questions are answered.
Step 3: Inspections and Disclosures.
Your rate-lock will expire in 30-60 days, so essentially it only applies to this property. Don’t stress too much about locking-in rates until you are very sure that there aren’t any “deal-breaker” problems with the house. You should know this within a week or 10 days from getting into contract.
Step 4: Lock-In Your Interest Rate.
Once you are sure this is the house and you are happy with your quoted rate and costs, go ahead and lock in it. Your window to lock in your rate starts when you are sure this is the house, and ends about a week before close (to give your lender time to process). For most buyers, this is roughly a 10-day window.
Your lender will provide you, in writing, with a document detailing your lock, the cost, and the expiration. If it’s verbal, it doesn’t count.
You don’t need to lock a rate before securing a property.
If a rate lock expires, you can’t get it back.
If interest rates go up, you win. But if they go down, you have to pay more for the right to drop your rate. This is a “float-down” clause that adds to the cost of your initial lock. Be sure to ask about this when you get your initial quote.
Finally, you aren’t required to lock-in your rate. Explore it, and weight the pros and cons, but know you don’t have to lock in your mortgage rate.