Home Buying Help: Should I Lock in a Rate on My Mortgage?
Mortgage rates change daily, making it difficult to spot the perfect moment to lock in a mortgage rate. To simplify the decision, keep these things in mind:
- Timing is everything.
- Have a few options to compare.
What is a Mortgage Rate Lock?
It’s an agreement the lender will deliver a specific combination of interest rate and points if the mortgage closes by a certain date. A point is a fee or rebate equal to 1 percent of the loan amount. Often times, rate locks last for 30, 45 or 60 days, but they can be shorter or longer. A rate lock protects the borrower from rate fluctuations during the lock period.
To begin, find out when your loan is expected to close and work backward to determine when to lock the rate. If you think you need 45 days to close your loan, find out what the interest rate would be if you locked it for a 60-day period.
Find the Best Combination For You
Look for the sweet spot when pricing out a rate lock. The sweet spot is the combination of interest rate, term, and cost you need to acquire the best deal. Most lenders won’t lock-in your rate for less than 30 days. An exception would be if you’re ready to close and offer the same rate for a 15- and 45-day period. There are different lock periods between 15 and 60 days. Anything longer than 60 days gets pricey, so it might be smarter to wait until you get closer to the closing date and check rates again.
When is the best time to lock in your rate?
For most homebuyers, it makes sense to sign a purchase agreement on a specific property before trying to lock in a mortgage rate. Then, do your research and find a mortgage loan with a good interest rate. After you found a favorable interest rate, ask your lender to lock-in the rate in writing. Before you formalize the rate lock, be sure it’s not too early. If your loan doesn’t process within that period, your rate lock offer will no longer be valued. Therefore, you need to make sure that the duration of your lock-in will give the lender enough time to process the loan. To do that, ask the lender to share the average loan processing time and try to get the lender to lock-in your rate for as long as possible to protect yourself.
One way to make sure that your loan closes on time is to have all your required documentation ready for your lender. Whenever you are asked for a document or information, the sooner you give it to your lender, the faster your loan will be processed. Even if your closing date is weeks away, get your information and documents ready now. Your new documents might generate questions from the underwriter, requests for new information, etc. You don’t want your loan delayed by an eleventh-hour request.
For more information about locking in your mortgage rate or the mortgage loan process, contact First Ohio Home Finance.
