Understanding the Pros and Cons of Mortgage Rate Locks

September 3, 2021
Integrity First Lending

Mortgage rates are in a constant state of fluctuation, and this naturally can create some stress for homebuyers who are looking to nail down the lowest rate possible. One potential solution available to many buyers in this situation: What's known as a mortgage rate lock.

At Integrity First Lending, we're happy to assist clients with numerous areas of mortgage acquisition, from real-time mortgage rates in Utah to every step of the application and approval process. What does it mean to "lock in" your mortgage rate, and why should or shouldn't you consider this route? Here's a general primer.

pros cons mortgage rate locks

How Mortgage Rate Locks Work

A mortgage rate lock refers to the process of having your lender "lock" you in to a predetermined interest rate for a certain period of time. This pre-determined interest rate is what's known as the "locked" mortgage rate, while this period of time is often termed the rate lock period.

Generally speaking, rate locks will take place at the time when you put in an offer on a home you're interested in. The lock will usually last for a predetermined number of days: 30, 45, and in some cases even 60. The cost for locking in will almost always be dependent on how long the term of the lock is; rates for 15-day locks are typically cheaper than rates for 60-day locks.

A rate lock is often accompanied by an agreement that limits changes in the interest rate if they're applied to new buyers, known as a no-lock commitment letter. This is intended to protect you from the possibility that the interest rates would be raised before your lock expires.

When You Should Get a Mortgage Rate Lock

The primary reason borrowers consider mortgage rate locks is to turn an unpredictable part of the process into something more certain. If you're looking to purchase a home, for example, knowing that the interest rates are locked in will give you some surety that your monthly payment won't jump significantly between now and when you finally close on the property. For some, especially those purchasing a larger home, a jump of even a partial point in interest rate could completely change your financial picture.

Possible Downsides of Mortgage Rate Locks

The most common downside of a mortgage rate lock is the time period it locks you into. Not all buyers are able to close on their home purchase within the agreed-upon time frame of the lock, which means that you could be stuck paying a higher rate on your mortgage than what's available at the moment.

In other cases, some borrowers who are market-savvy will choose not to lock in their rate because they believe rates will drop in the near future. In this case, especially if you're highly confident in your opinion, holding onto the fees you'd pay for a mortgage lock is the way to go.

For more on mortgage rate locks, or to learn about any of our home loan services, speak to the staff at Integrity First Lending today.

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