December 16 2022
A mortgage rate lock is designed to protect buyers from rising interest rates. When you get pre-approved for a mortgage, you’ll be offered an interest rate that your lender will allow you to lock for up to 120 days – regardless of market conditions. In an environment where rates are likely to increase, this is an extremely useful tool.
What does a rate lock do?
A mortgage rate lock is received when a buyer gets pre-approved for a mortgage. It puts a hold on a mortgage interest rate 120 day or four-month period – whether you’re applying, renewing or refinancing. A mortgage rate lock protects you against the potential of rising interest rates and gives borrowers the opportunity to secure a specific rate while waiting for final mortgage approval. Your mortgage rate determines what your monthly payments will be, and in turn whether you can afford to carry the home.
What if interest rates fall after I’ve locked in?
There are two potential workarounds you can consider if rates fall after you’ve locked in a rate.
Some lenders will offer a float-down option with certain criteria and fees in place. This would require you to pay an additional percentage of the loan amount (typically 0.5% to 1%) to drop your locked-in rate to the current mortgage rate. This is a risk-free way to adjust your rate should rates go down after you’ve locked one in.
If you’re unhappy with your current mortgage rate lock, you can always jump ship and take your business to another lender. This may delay your closing deadline and cost you additional appraisal fees, but it can also be beneficial for your finances in the long-run.
When’s the best time to lock in a mortgage rate?
If you’re looking to close on a home, you will eventually have to lock in a rate so you can secure a mortgage. If you’re content with the rate you’ve been offered – take it. Waiting even a few weeks has the potential to add hundreds of dollars to your mortgage on an annual basis. Our best advice would be to shop different lenders to find a rate that you’re comfortable and confident proceeding with and lock it in.
At Homewise, we work with over 30 banks, credit unions and monoline lenders to find the best mortgage rates and terms for our clients. All you have to do is get pre-approved with us online in just five minutes!
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