Interest rates change all the time. They can change monthly, daily, or sometimes even hourly, and when you’re taking out a mortgage for tens or even hundreds of thousands of dollars, a tiny move in the interest rate can make a huge difference.
Rate Lock
When you apply for a mortgage loan, an underwriter will evaluate your application to determine if the loan will fall into compliance with that lender’s guidelines. Based on the underwriter’s preliminary review of your application, they may offer you a lock-in or rate lock.
A mortgage rate lock-in or rate lock simply means that the lender will quote an interest rate that will not change before your loan closes. Rate locks are typically available for 30, 45, or 60 days and even longer. If your rate isn’t locked in, it can change at any time.
While locking in a rate can be very beneficial to the borrower, there are downsides to having a rate lock. If your closing is delayed beyond the end of the lock in period, you may have to extend it, and you could incur additional fees or charges to do so. In addition, if interest rates fall while your loan is being processed, the terms of the lock in may preclude you from taking advantage of the lower rate.
Even if you have a rate lock in, the interest rate you end up with could change if anything material changes during the lock in period. There are many reasons that the lender could change your locked in rate. Here are some examples that could affect your rate:
- the amount of your loan changes
- the appraisal of your home comes in for less or more than expected
- the underwriter is unable to verify the information stated on the application
- your credit score changes
- you decide to go with a different mortgage product
- your down payment changes
Lock in Fees
Rate locks aren’t free, but you may not see this fee as a separate line item in any of your closing documents. The reason is that most lenders combine the lock-in fee with the rate you’re paying or the origination fees. If your home doesn’t close within the lock-in period, you may be charged an additional amount to extend the lock-in. If the lock-in period expires, but rates have gone down, there may not be a fee to extend.
Float Down Lock
Some lenders offer a float-down lock, which is designed to help you take advantage of lower rates if they become available before you close the loan. Depending on how much you would need to pay for the float-down lock, it may be in your best interest to simply go with the original lock-in rate.
When To Lock or When Not To Lock?
Every home buyer has their own unique situation, so there’s no definite answer to this question. The best time to get a rate lock is when interest rates are at their lowest, but it’s impossible to know for sure when that will happen. There are so many factors that affect mortgage interest rates. The bond market, inflation, economic growth, the Fed’s monetary policy, and the state of the housing market all come into play.
Some people are more comfortable locking in a rate early on, while others prefer to gamble on interest rate fluctuations. If rates appear to be going down, your best bet may be to go without a lock-in rate. On the other hand, if rates are going up, by all means, check with your lender to discuss a rate lock.
How to Get a Lock-In Rate
To get a lock-in rate, you’ll need to provide the lender with several documents. These could include the following:
- Credit report
- Bank statements
- Social security number verification
- Investment account statements
- Tax returns
- Pay stubs
- Driver’s license or passport
The underwriter will perform a preliminary review of this information and may offer a lock-in rate. Before you accept that rate, you should ask for details about the cost, the length of the lock-in period, and what happens if the closing is delayed or if rates go down during the lock-in period. Based on the details, you can make a decision as to whether the lock-in is best for your particular situation.
Let Us Help You!
When you buy a home, you’re in it for the long haul. You’ll have a mortgage payment for 15, 20, or 30 years, so it’s smart to shop around to find the best mortgage lender out there, one you can trust. For over 20 years, Oklahoma’s premier mortgage company, Financial Concepts Mortgage, has been providing mortgage assistance to the citizens of Oklahoma with some of the best rates in the nation. We do our best to relieve you of the stress surrounding the home-buying or refinancing process.
Our goal is to create lasting relationships with each and every client and to continue providing excellent service for years to come. If you’re a first-time home buyer, a previous homeowner, are interested in refinancing, or are looking to consolidate debt, we can help. Our Oklahoma-based team will work with you and your family to ensure that you get a home loan solution tailored to your specific needs.
For more information about our company or the services we offer, visit our website. To speak directly to one of our loan officers, give us a call at (405) 777-4281 or visit us in person at any of our four locations in Enid, Edmond, Midwest City, or Eufaula.