To Lock In or Not? How to Decide if a Mortgage Rate Lock is a Good Idea

If you are thinking about buying a home in the near future, you’re probably paying really close attention to what happens with mortgage interest rates. In recent months they have gone down, which is great for homebuyers who are able to get a lower rate, since even a small difference in your interest rate can dramatically reduce the amount of interest you will pay over the life of a 30-year mortgage loan. One of the most common questions that comes up is whether you should lock in a mortgage rate, and if you should, then when?

With rates hovering historically low, is now the right time to lock in your mortgage rate?

What is a Mortgage Rate Lock?

Locking in a mortgage rate with your lender means that you are guaranteed to get a certain rate—it freezes the interest rate for your loan so it cannot go up. Since mortgage rates are always changing, the ability to lock in a rate that you feel comfortable with can be great to avoid the surprise of a higher monthly payment if rates do spike right before you close.

Some lenders require that you pay a fee to lock in a rate, while others will let you do it without a fee provided you close within a certain period of time—usually between 30 and 60 days. This should give you plenty of time to get through loan processing and underwriting.

When is the Right Time to Lock In?

You don’t want to lock your rate too soon, since you need to close on the loan before your lock expires. Generally the best time will be when:

  • You put in an offer on a home that was accepted
  • Your loan application was approved
  • You feel comfortable with the current mortgage rate
  • You can close on the loan within the lock period

Are There Times When You Shouldn’t Lock Your Rate?

Locking in a mortgage interest rate can be beneficial for you as the buyer, but only if you think that rates might go up in the near future. If rates are going down over time or staying relatively steady, it may not benefit you to lock in a rate. Some mortgage rate locks do allow you to have a one-time “float-down”, which means that if rates continue to drop you can adjust your locked rate downward once, but not all of them include this provision. Without this provision, if you lock in and rates go down, you will still have the higher rate.

There are factors that could void or cause your rate lock to expire, such as:

  • Underwriting or loan processing issues
  • Credit score changes that disqualify you for that rate
  • Income or employment changes
  • Loan revisions (such as changing the length or type of mortgage)
  • Low property appraisals

Talk to Integrity First Lending today about options for mortgage rate locks. With rates at historic lows now is a great time to lock in yours.