What is Rate Lock?
Mortgage rates can change daily, even hourly. When a mortgage rate is locked, it protects the borrower from interest rates rising between the time that the rate is locked and closing. However, because of changing rates and closing timelines, timing is everything when it comes to locking in a rate for a home mortgage.
A rate lock guarantees a borrower that they will receive a specific interest rate, at a specific price during a specific time for a home mortgage loan. This protects them from rising interest rates.
What causes interest rates to go up or down? There are multiple factors that can cause it to shift.
When Should I Lock my Rate?
Most rate locks will expire after 30, 45, or 60 days unless otherwise noted by your lender. Therefore, the majority of homebuyers will first sign a purchase agreement on a specific property before locking in a rate. Once you have done comprehensive research on mortgage home loans and have found the right one for you, it’ll be time to start talking to your lender about locking in the rate.
When you agree on a rate lock, you want to consider timing thoughtfully and strategically. Locking in too early can be risky as the agreements may expire after 30 days. If your mortgage loan does not process in that time period, you will lose the rate lock. You can ask your loan officer what the average loan processing time is to give you an idea of when you will want to lock in your rate and for how long.
After the rate lock has expired, your rate will no longer be guaranteed at the discussed points and interest rate. However, your loan officer can work with you to extend the lock if needed.
Are Longer Rate Locks Better?
The short answer to this question is yes. A longer rate lock will give you more time to ensure you get the agreed upon price and interest rate in the case that the mortgage loan takes longer to close than expected.
However, when you agree to lock your rate for a longer period (over 30 days) the interest rate that is locked may not be as low as it would have been with a shorter rate lock. If your rate lock expires before closing, you will need to re-lock your rate lock.
Tips for Finding a Great Mortgage Rate
The home buying process can be overwhelming when it comes to finding the right rate. There are a few things that homebuyers can do to optimize their chances at a great rate.
- Polish Your Credit Score. The higher your score, the better your interest rate and the more loan choices you’ll have.
- Offer a Large Down Payment. Paying more money upfront will help in getting a better interest rate and can save money for the borrower
- Consider How Long You Will Be in the Home. If you know that you will be in your home for a short period of time, a short term fixed rate mortgage may be your best option.
At Chris Doering Mortgage, our experts can speak to you about a variety of home loans and options regarding home types, rates, closing costs, and more. If you’ve found your perfect home and are ready to take the next big step, get in touch with one of our loan officers today.