With low mortgage rates of recent years, people want to be sure the rates stay low before their closing date. This often raises the question: when should I lock my mortgage rate?
Interest rates on mortgage loans fluctuate up and down. A mortgage rate lock allows you to lock in a specific rate for a set amount of time, usually between 30 and 60 days. This guarantees you the rate, protecting you from rising interest rates.
Because locked-in rates usually last between 30-60 days, you want to be sure you lock in at the right time. This is generally after the purchase agreement is signed, when you know when your closing date is. If you know your closing date is in 90 days, you can decide to either get an extension on your rate lock (although this comes at a price), or you can wait to lock in closer to your closing date.
Another factor to consider is the cost of the rate lock. Sometimes a rate lock is free (or part of the lender’s fee). But generally speaking, a rate lock is more expensive the longer the term is for. A thirty-day lock will cost less than a sixty-day lock for the same rate.
Your mortgage broker will be able to guide you in deciding when to get a locked-in rate from your lender and making sure the agreement is in writing.
The benefit of a locked-in rate is that you will not have to pay a higher interest rate if they rise. Even a small increase in rates can cost a lot of money over time. If you are buying a $300,000 house, an interest rate of 4% will give you monthly payments of about $1,432. If that rate increased to 4.25% before you were able to lock it in, the interest rate increases your monthly payment to $1,476. A difference of $44 per month is not a lot, but if you stay in the home, it will add up to significant savings. The 4% interest fee will end up saving you $15,686 if you stay in the house through the term of the 30-year mortgage.
A rate lock goes both ways. This means, if you lock in at 4% and rates lower to 3.8%, you are still locked in at 4%. In some cases, you can get “float down” as part of your lock agreement. This is an added cost to you.
Once your rate is locked in, you just need to make sure you close before the end of your agreement. Your mortgage broker will help you stay on top of these dates so that if an extension is needed, you are able to get one.
More questions about locking in a rate? Contact us today!
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