Questions & Answers About Locking in a Mortgage Rate

In case you haven’t heard, mortgage rates have been at or near historic lows for quite a while now, and if you’re in the market for a new home, that is something you want to keep an eye on. While nobody can predict what market rates will do, everybody wants to get the best possible interest rate on something as big as a mortgage loan. If you’re shopping for a home right now and you’re worried that rates might go up, consider whether locking in a rate right now is the best choice for you. Here are some commonly asked questions and answers about mortgage rate locks.

What does it mean to “lock in” a mortgage rate?

The going interest rate for mortgage loans can vary as the market fluctuates, so if you are going to buy a home and you know that the rates are very low right now, you can talk to a lender about “locking” that rate in for your loan. Then if the rates go up between now and when your home loan is finalized, you will still get the lower rate.

How long can I keep my rate locked in?

The exact amount of time that you can lock a mortgage rate is dependent on the lender, but most offer it for as few as 15 days as up to 60 days or more. The catch is that the longer you want to lock in a rate, the more likely there will be a cost—that’s because if rates do go up and you get to keep the lower rate from before, the lender is the one that will lose money.

When is the best time to lock in a rate?

Since you cannot keep a rate locked in indefinitely, and the home buying process takes time, it’s best not to lock in a rate until you’re well into the process of buying your home. Most buyers wait until they have an offer on a home that the seller has accepted; that way you only have to wait through the process of closing the loan.

Am I guaranteed to get the lowest available interest rate if I lock it in?

Not necessarily. The rate you ultimately get depends on a lot of factors, so to accurately give you a rate quote, the lender may need information about your credit score, the loan-to-value ratio you’re going to need, the type of property, and your ability to pay back a loan

What will it cost to lock a rate?

Most borrowers won’t pay a fee (out of pocket) for a rate lock, but that doesn’t mean it’s free. As mentioned previously, when a lender allows a borrower to lock in an interest rate they are taking a risk that they might lose out on money over the years if rates go up before the loan closes. In most cases you “pay” for the rate lock with a slightly higher interest rate—the longer you lock in the rate, the higher it’s likely to be at the end. 

What if the rate lock expires before closing?

Depending on the lender, you might be able to get an extension in the lock, but you would have to discuss what is available. For this reason, it’s not recommended to lock in a rate until you’re fairly certain you can close the loan in time.

If you’re in the market for a new home and want to find out more about locking in historically low interest rates, talk to Altius Mortgage today.