A rate lock on a mortgage means that your current interest rate is “locked in” and won’t change for a certain amount of time, known as the rate lock period. Since mortgage rates can change on a dime, a rate lock can protect you from rising interest rates before you get a chance to close on your home.
How long can you lock in a mortgage rate?
Rate locks are a great option if you’re worried about rising rates, but they do have an expiration. The exact timeframes may vary, but a rate lock period is typically between 15 – 60 days. If your rate lock expires before your loan closes, you may have the option to pay a fee to extend the lock period. Otherwise, you’ll get the interest rate that’s available when you lock it before closing.
A rate lock can be void if there are changes concerning your mortgage application or financial situation. Since your interest rate is based on factors like your income and credit, any changes to your financial situation may mean that your rate lock can be voided. For example, opening a new line of credit could result in a shift in your debt-to-income ratio (DTI) or credit score, which means your lender will need to reevaluate your eligibility for the loan and interest rate.
Do I have to lock in my interest rate?
You may choose not to lock in your rate at all. This is known as floating your rate. If interest rates appear to be on the decline, this could pay off. Do keep in mind, however, that no one can predict what rates will do and choosing not to lock in a rate could be risky. It’s always best to research how rates have been acting recently and lock in whenever you are most comfortable with the monthly payments.
What if my home’s construction takes longer than the rate lock period?
If you’re purchasing a new construction home, it could be months – sometimes even a year! – before you’re ready to close. In this case, your lender may offer you an extended rate lock for periods of 180, 270, or 300 days. Additional fees may be required at the time of your rate lock, but they may be refundable if the loan is closed pursuant to the terms and conditions.
Keep in mind that it is very difficult to predict what will happen with mortgage rates in the future, especially a year in advance. The best thing to do is to work closely with your Loan Consultant to analyze current interest rates, how the market is moving and your own homebuying budget. Together, you can decide when it makes sense to lock in a mortgage rate.
