Perhaps you’ve heard the term “Lock In” regarding Mortgage Interest Rates. It sounds like a big, and perhaps scary, commitment- no? No worries! (And no need to get cold feet.) We’ll explain why Locking In that Mortgage Interest Rate isn’t as big of a step as one may think.
What happens when you lock it in?
Locking In the Mortgage Interest Rate is one of the earlier steps taken when securing a mortgage; For most home shoppers, it's best to lock in your Mortgage Interest Rate after you sign a purchase agreement. Don't lock too early — If your loan doesn't process within your lock period, you'll lose the mortgage rate. It pays to shop around when looking for Mortgage Interest Rates. A Mortgage Rate lock fee can vary from Mortgage Lender to Mortgage Lender. Once Mortgage Lenders have your property info, sales contract, proof of income and analyzed your credit history they’ll proceed with securing the best Mortgage Interest Rate possible. Once you Lock-In the Rate, a Mortgage Lender will agree to keep that Mortgage Interest Rate between 30, 45, 60, to 90 days. After that, you might have to pay a fee to extend the mortgage rate lock.
What is the Mortgage Interest Rate lock period?
It’s the amount of time you and your Mortgage Lender agree on a Mortgage Interest Rate that will stay locked before the closing date. Locking in a Mortgage Interest Rate protects your Mortgage Rate from market changes that could increase the Mortgage Rate. And, although Mortgage Interest Rate lock protects you from higher rates, it won't get you a lower mortgage rate, either; unless you have the option for a one-time 'float down.' Once locked, the loan's Mortgage Interest Rate won't change — barring any changes to your application details. You're protected from higher Mortgage Interest Rates but might not have the options for the free one-time float-down (most Mortgage Lenders don’t offer a float down option).
When should I lock in my Mortgage Interest Rate?
Many people wishing to refinance or purchase a home ask, "What if you lock in before an appraisal?" If you lock in your Mortgage Interest Rate before an appraisal is completed, a Mortgage Interest Rate adjustment may apply due to appraised value. Otherwise, it may be possible to float your Mortgage Interest Rate and lock in at a later time (depending on the Mortgage Lender). We always recommend locking in your Mortgage Interest Rate as soon as you can, especially if the mortgage Mortgage Lender has a free float down policy.
What if my Mortgage Interest Rate lock expires?
Another concern from borrowers is as follows: "My mortgage rate lock is about to expire and we haven't closed yet??" Answer: Once the closing date is only a month or two away, the Mortgage Lender will allow you to lock in your Mortgage Interest Rate for a certain number of days. However, if you must postpone closing past the Mortgage Interest Rate lock's expiration date, the Mortgage Interest Rate lock might not be valid or you might have to pay a rate lock extension fee.
No Commitment or Obligation
Here’s why you shouldn’t worry about locking in. Most homeowners think because they locked in a Mortgage Interest Rate with a Mortgage Lender they have committed themselves to the Mortgage Lender (which is not true).
At any point during the Refinance or Purchase transaction, you can cancel or choose to work with another Mortgage Lender. NO commitment, NO obligation, NO worries...
Things that can change the Mortgage Interest Rate.
If you need to update your mortgage application: If you wish to add a co-borrower, change the loan amount, or make any other updates... it’s possible to have your Mortgage Interest Rate change based on the new scenario, loan amount, etc.
You want a different kind of mortgage: Even if you need to change the mortgage type, most likely your Mortgage Interest Rate will change based on the new mortgage program. For example, if you choose to change your conventional loan to an FHA loan.
Credits or Points: If you originally Locked In your Mortgage Interest Rate, along with your point or credit options- it’s possible to change the point or credit options to have your options based on the Mortgage Interest Rates that existed on the same day that you originally took out the loan.
For more information on Mortgage Interest Rates, or to speak with a professional, please feel free to contact us.