What You Need to Know About a Locked Mortgage Rate

You just put an offer on your dream house, and are ready to apply for a mortgage.

When you are in the process of getting your home loan, you will have the opportunity to lock in your mortgage rate. This is where an important decision needs to be made.

As with most things, timing is everything. That includes mortgage rates. Let’s talk about locked mortgage rate basics, plus its advantages and disadvantages.

What is a Locked Mortgage Rate?

A locked mortgage rate is an agreement between you and your lender. At the beginning of your loan process, you can request a lock to “lock-in” your interest rate.

Your lender will agree to give you that selected rate and cost. If interest rates rise during the loan process, you are guaranteed your lower locked rate.

On the other hand, if interest rates fall, you will still be bound to your locked rate.

In all reality, it can be a bit of a gambling game. Interest rates are changing daily, but in most cases, if you like the interest rate you are offered, it’s safer to lock it in when you can.

When Should I Lock My Rate?

Since interest rates change so frequently it can be tricky to know exactly when to lock in your rate.

Basically, there are three different strategies people use when it comes to getting your rate locked.

The first, and most common, is right away. As soon as the loan process starts you talk to your lender about locking your rate. This will guarantee you a certain rate and protect you from fluctuations – then you can forget about it.

Just be careful, because most locked rates are only good for 30 days. You will need to pay attention to this timeline, as there is additional cost associated with ‘extending’ a locked rate.

The second strategy is for risk takers, and in our opinion, not always a sound decision. These clients will watch the interest rates fluctuate each day and hope to double down on the lowest interest rate they see.

If you decide to take this approach, just be aware that interest rates often rise much quicker than they fall. So, hoping that rates will fall is taking a big risk.

The third way is to purchase a “float down” option. This way you can lock in a rate, with the option of lowering it if interest rates drop.

This is the best of both, but it will absolutely cost you more money. You’ll have to decide if the benefit outweighs the higher cost.

How Long Will the Locked Rate Last?

Most locked mortgage rates will last 30 days. You have the option to extend if your loan is taking longer than that. But, it will be more money.

The loan process can take a while. To make sure the process goes smoothly, do what you can on your end to make sure there are no hang-ups. Gather all the required documentation and submit it as soon as you are asked for it.

If the lender is the one who causes any delays, sometimes you can negotiate a rate lock extension.

Does It Cost Money To Lock My Rate?

The short answer is yes. However, not locking a rate is not an option. All loans must have a locked interest rate prior to closing.

The longer your rate lock, the more costly it will be. For example, a 45 or 60-day lock will end up being more money than a 30-day lock. And a 30-day lock will cost more than a 15-day lock.

The best thing to do is to talk to several different lenders to see who has the most competitive terms (FYI: at DMA – we do this for you!). If comparing rates from different lenders, be sure to compare quotes from the same exact day. A quote from yesterday compared to a quote from today is not apples-to-apples.

How Do Interest Rates Affect My Monthly Payment?

You may be surprised at how a little change in interest rate can affect your monthly payment.

To see how different interest rates work, check out this mortgage payment calculator.

For examples, a $300,000 30-year loan with an interest rate of 4.0% will cost you $1432.25/month.

Compared to the same loan with an interest rate of 4.5% that will cost you $1520.06 every month.

Just the .5% difference in the interest rate can make a big difference.

This is one reason why so many people decide to lock their rate early on. They don’t need to worry, and can start planning for exactly what their monthly payments will be.

It takes the guessing game out of it.


Now Go Find the One

The most important thing to do when considering locking your rate is to decide if you are comfortable with the proposed mortgage payment. If you are, lock it and move on.

Also, get to know the people who you will be working with. Will they be offering you a product that suits your needs? Will they give you fair and accurate advice?

Finding a good loan officer, with a solid lending company will make your experience much more pleasant.

So get out there, find that perfect house, and give us call.