March 1st, 2018 5:28 AM by Jackie A. Graves, President
mortgage rates increase, homebuyers should pay close attention —
higher rates mean more cash out of pocket for borrowers.
those worried that rates will climb
even further before closing, a mortgage rate lock could be the
is a mortgage rate lock?
A rate lock freezes
an interest rate on a mortgage for a period of time. The lender guarantees
(with a few exceptions) that the mortgage rate offered to a borrower will
remain available to that borrower for a specific amount of time. The borrower
doesn’t have to worry if rates go up between the time they submit an offer and
close on the house.
rate locks typically last from 30 to 60 days, though they can also
last 120 days or more. Some lenders may offer a free rate lock for a
specified amount of time. After that, however, the lender may charge fees for
extending the lock.
can’t lock in a rate until after the initial loan approval. However, many
borrowers wait until they have found a home to purchase.
typically wait because they don’t know how many days it will take to find a
home and have an offer accepted. They worry that by locking in too early, they
may miss the opportunity for a better rate before they complete a purchase or get
stuck paying extra to extend the lock once it expires.
longer rate lock is more expensive. For example, a borrower who chooses a
30-day lock on a loan may pay a 4.875 percent rate and zero points, while a
60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly
higher rate with a half-point.
mortgage rates expected to rise, you might consider jumping on the lower rate
as soon as possible. Even a small hike, such as a quarter of a point, can
mean a difference of hundreds or thousands of dollars in interest each
this current environment, it makes the most sense to start the process
quickly,” says Randy Hopper, senior vice president of mortgage lending at Navy
Federal Credit Union. “The borrower would contact the loan officer and say,
“Hey, I’ve got a contract on a place,” and then the loan officer locks in the
rate as soon as they review the contract.”
ask your lender before you lock
sure to get a clear explanation of your lender’s rate lock rules. Find out if
your locked rate can change in certain circumstances — for example, if mortgage
rates drop, or if you change from a 30-year fixed-rate mortgage to an FHA loan.
be sure that your rate lock is long enough to cover the entire homebuying
process. For example, if you anticipate that your closing will take longer than
a month, talk to your lender about locking in a rate for that period without
sure you’re financially prepared
you lock in a rate, make sure your budget is in order and you are financially
prepared to apply for a mortgage.
says to ask yourself these questions:
you lock in a rate too soon and end up going with a different type of loan,
your rate lock might be void. Borrowers also can lose a rate lock if their
circumstances change — such as a shift in their credit score or in their debt-to-income ratio — before settlement.
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