Jim Quist is the President and Founder of NewCastle Home Loans. Jim has worked in the mortgage industry for over 20 years. His goal is to help home buyers find the information they need to close on their home purchase with confidence.
Jerry is furious. The interest rate was 3.5% three weeks ago. Today, a week before closing, the loan officer said the rate is 4%!
The higher rate will cost Jerry an extra $94.34 each month. That's $8,000 in 7-years when he plans to sell the place. Did the lender screw the homebuyer?
No. Jerry didn’t lock-in when the rate was 3.5%. Take it from Jerry, when everything is said and done, the rate you lock-in is the rate you get.
In this article, I’ll tell you how to lock-in a low mortgage rate. Moreover, I’ll give you answers to the common questions my customers ask me about the mortgage rate lock.
- What is a Mortgage Rate Lock?
- How Long is the Rate Lock Period?
- How do I Lock the Mortgage Interest Rate?
- Should I Lock or Float the Mortgage Rate?
- What if Rates Drop After I Lock?
- Can the Interest Rate Change After I Lock?
- What is a Rate Lock Extension?
What is a mortgage rate lock?
A rate lock is an agreement between you and a mortgage lender. The lender agrees to give you an interest rate with certain fees for a specific time. In return, you agree to accept the lender’s rate and fees and close the loan before the lock expires.
Mortgage interest rates are always changing, like stocks, bonds, or any investment. By locking-in, you freeze the lender’s rate and their origination charges. You know how much your loan will cost before you close.
Let’s say that the lender is currently offering a $332,500 loan at an interest rate of 3.375% with origination charges of $831. By requesting a rate lock, you agree to the rate, pay the fees, and close before the lock expires. By locking the rate, the lender agrees to hold these terms for a specific number of days.
How long is the rate lock period?
Lenders have different lock periods. We offer 25, 40 and 55-day locks. The lock period must take you through the closing date. You can find the closing date on your sales contract.
Suppose you want to secure today’s rate and your closing date is in 33-days. You should lock-in for 40-days. If you think there’s a chance your closing might be delayed, take the longer rate lock period.
Longer lock periods might cost more. The interest rate or fees for a 55-day lock could be higher than a 25-day lock. Ask the loan officer for the cost difference between the lender’s lock periods.
Extended lock periods are longer than 55-days. Extending your rate lock is hardly ever worth the cost. You’re better off waiting until you’re within 55-days from closing to lock-in.
How do I lock the mortgage interest rate?
Ask the lender to lock-in. The lender won’t do it automatically, even after you complete your loan application.
After you apply, the lender will send you a Loan Estimate. Look on page 1 to see if your loan is locked-in. In this example, the interest rate is not locked.
When you’re ready to lock, call your loan officer rather than email. Since rates are in a constant state of flux, Friday’s rate could be higher on Monday. If the loan officer misses your email, you could end up with a higher rate and monthly payment.
After you request the lock, the loan officer’s lender will confirm it by sending you a revised Loan Estimate and a Rate Lock-in Agreement. Review the documents. Contact the loan officer if you disagree.
Check Page 1 of the Loan Estimate. Confirm that the lender locked the interest rate and the date that the lock expires.
Page 2 of the Loan Estimate, in the Loan Costs column on the left, review the lender’s Origination Charges. These are the upfront fees that you pay to the lender at closing for the loan you locked-in.
Some lenders charge a Rate Lock Fee or discount points and others have no fees. Either way, you can see how much the lender is charging you in Section A.
Use our free mortgage calculator. It gives you real rates and closing costs so you know how much money you need to buy a home.
The Rate Lock-in Agreement confirms some important information. Double-check five items. And make sure the lock-in expiration date is on or after the estimated closing date.
Many banks and credit unions still mail documents confirming your rate lock via the USPS. While you wait for the mailman, ask the bank’s loan officer to send you a quick, informal confirmation by email or text - just in case.
At NewCastle, we confirm your lock instantly by email and through the loan dashboard so you never worry about your interest rate.
Should I Lock or Float the Mortgage Rate?
Don’t try to predict the mortgage interest rate market. Nobody can, certainly not the loan officer.
Plan to lock-in after the property seller accepts your offer to buy the home. When you have a sales contract, you’ll know the details like the property address, purchase price, loan amount, and closing date.
Before you pull the trigger:
- Make sure you’re getting the best deal, the one with the lowest interest rate and closing costs.
- Apply for the mortgage and review the lender’s Loan Estimate. You can get a Loan Estimate instantly on my website.
- Sign the Loan Estimate and the Intent to Proceed. This form tells the lender you want to move forward with the application for that loan.
What if Rates Drop After I Lock?
Don’t expect the lender to lower the rate if they drop before you close. Your rate lock is an agreement that works 2-ways. You accept the lender’s terms. In exchange, the lender won’t increase your rate, payment, or fees if rates go up.
However, a lower rate is an opportunity for you to save money over the long-term. So ask the lender’s loan officer for a lower rate. They might concede to keep your business. If their answer is no, then decide if switching lenders is worth the savings.
Check to see where rates are today. Our mortgage calculator shows you all the details. It’s the perfect tool for home buyers. Here’s a screenshot to show you how easy it is to compare loans.
Can the Interest Rate Change After I Lock?
Yes. If you change your loan after you lock-in then the rate and fees could change. For example, if you adjust the loan amount or switch from a 30-year fixed to a 15-year fixed then the lender might modify the rate lock agreement.
Also, changes to the value of the house, your credit score, income, employment, or the amount of your down payment could trigger revisions to the rate and fees you locked.
If the lock expires before you close then your rate and fees could change. Sometimes you can’t control it. If you let the rate lock expire, then you’ll need to re-lock before you close. If mortgage rates are higher when you re-lock then your rate will go up and you could end up paying a lot more for your mortgage than you bargained for.
What is a Rate Lock Extension?
A rate lock extension is when the lender adds extra days to your rate lock period. Ask the loan officer for an extension if your lock will expire before your closing date. Make the request before the lock expires.
In some cases, the lender will charge you a fee to extend the lock period. The extension fee might be cheaper than re-locking the loan at a higher interest rate.
For example, we charge 0.02% of the loan amount per day. So a 7-days rate lock extension on a $100,000 loan would cost $140.
A mortgage rate lock is an agreement you make with the lender. You get a rate and fees as long as you close within the lock period and you don’t make changes to the loan.
You can lock-in for 25, 40, or 55 days. Just be sure that the lock period won’t expire before you close. When you’re ready, call the loan officer to request a rate lock. Ask for written confirmation, review it, and talk to the loan officer if you disagree.
The rate and fees you lock-in could change for three reasons. You change the loan, your loan application changes for reasons beyond your control, or you let the lock expire before you close.
If you need more time on the lock, call the lender before it expires and ask for an extension. The lender might charge you a fee, but the cost to extend the rate lock is probably less than re-locking at a higher interest rate.