When should you lock a mortgage rate?
As mortgage rates increase, homebuyers should pay close attention — higher rates mean more cash out of pocket for borrowers.
For those stressed that rates will climb much further before shutting, a mortgage rate lock could be the arrangement.
What is a mortgage rate lock?
A rate lock solidifies an interest rate on a mortgage for a while. The lender guarantees (with a couple of exemptions) that the mortgage rate offered to a borrower will remain available to that borrower for a particular amount of time. The borrower doesn’t have to stress if rates go up between the time they present an offer and close on the house.
Mortgage rate locks typically last from 30 to 60 days, however they can also last 120 days or more. A few lenders may offer a free rate lock for a predefined amount of time. After that, in any case, the lender may charge expenses for expanding the lock.
When to lock in a mortgage rate
Borrowers can’t lock in a rate until after the initial loan approval. In any case, many borrowers wait until they have discovered a home to purchase.
Borrowers typically wait because they don’t have the foggiest idea how long it will take to locate a home and have an offer accepted. They stress that by locking in too soon, they may botch the chance for a superior rate before they complete a purchase or stall out paying extra to expand the lock once it terminates.
A longer rate lock is progressively costly. For example, a borrower who picks a 30-day lock on a loan may pay a 4.875 percent rate and zero, while a 60-day lock may cost 1 point (equal to 1 percent of the loan) or a marginally higher rate with a half-point.
Be that as it may, with mortgage rates expected to rise, you should seriously think about hopping on the lower rate at once. Indeed, even a small hike, for example, a quarter of a point, can mean a distinction of hundreds or thousands of dollars in interest each year.
“In this current condition, it makes the most sense to start the procedure quickly,” says Randy Hopper, senior VP of mortgage loaning at Navy Federal Credit Union. “The borrower would contact the loan officer and say, “Hello, I have a contract on a place,” and then the loan officer locks in the rate as soon as they survey the contract.”
What to ask your lender before you lock
Make certain to get a clear explanation of your lender’s rate lock rules. See whether your locked rate can change in certain circumstances — for example, if mortgage rates drop, or on the off chance that you change from a 30-year fixed-rate mortgage to a FHA loan.
Finally, be certain that your rate lock is long enough to cover the whole homebuying process. For example, in the event that you anticipate that your end will take longer than a month, talk to your lender about locking in a rate for that period without paying expenses.
Make sure you’re financially prepared
Before you lock in a rate, make sure your budget is all together and you are financially prepared to apply for a mortgage.
Hopper says to ask yourself these questions:
- Is my credit score good enough to prequalify?
- Do I know how much I want to spend on monthly mortgage payments?
- Have I looked for homes in my budget?
On the off chance that you lock in a rate too early and wind up going with an alternate kind of loan, your rate lock may be void. Borrowers also can lose a rate lock if their circumstances change —, for example, a move in their credit score or in their debt-to-pay ratio — before repayment.