Jerry is buying a condo in two weeks. He just spoke with the bank’s loan officer and his mortgage is finally approved. All Jerry needs to do is lock the interest rate.
This sounds like great news, so why is Jerry disappointed?
He thought 4% was a done deal. The low rate is why he went to the bank in the first place. And now, with only two weeks before closing, the loan officer said today’s rate is 4.25%!
The higher rate is a big deal for Jerry. A 0.25% bump in the rate on a $300,000 loan will cost him an extra $525 each year for 30-years, or as long as he keeps the loan.
What went wrong with the mortgage?
Jerry didn’t lock the interest rate. It’s 4% on the Loan Estimate and initial disclosures that Jerry signed three weeks ago when he applied. He didn’t know it could change.
Like Jerry, you're going to put some time into shopping around for the lowest rate. It doesn’t matter what some loan officer quotes you. Ultimately, the rate you lock is the rate you get.
Read this article and you'll know exactly what to do to lock-in a low rate on your mortgage so that you’re one step closer to a great home buying experience.
What is a rate lock?
A rate lock is an agreement between you and a mortgage lender. When you lock, the lender agrees to give you a set interest rate with certain fees for a specific time period. You agree to accept the rate, pay the fees, and close your loan before the rate lock expires.
Why do I need to lock my rate?
All home loans require a rate lock agreement. It’s part of the process. Besides, mortgage rates are always changing. They go up and down. If your rate is not locked, it can change at any time. A rate lock protects you if they go up.
For example, if you lock at 4%, you get 4%, even if the rate goes up to 4.25% later. On the other hand, if the rate drops to 3.75%, you get the 4% rate that you locked.
How long is my rate good for?
Our lock periods are 25, 40 and 55 days. Make sure your rate lock period takes you through your closing date. Take the longer rate lock period if you think there’s a chance your closing might be pushed back.
Rates and fees are lower for shorter locks. You’ll save money if you go with 25 days instead of 55 days. Be careful because it could cost you more if you don’t close before the rate lock expires.
Locks over 55 days are expensive. Rates are much higher and lenders charge extra fees for extended lock periods. Many lenders, including NewCastle, don’t offer extended lock periods.
When should I lock my rate?
Lock as soon as you meet the lender’s requirements. Each lender is different. Ask the loan officer what documents he or she needs from you before you can lock.
Find a house you want to buy and make an offer to the seller. If the seller accepts the offer, you're under contract to buy the house. Shop and compare loan offers from a few different lenders. After you decide on a loan and the lender, it’s time to lock the interest rate:
- Contact the lender and apply for your mortgage.
- Review the Loan Estimate and give the lender your notice of Intent to Proceed with the loan application.
- Lock the rate.
Lock as soon as you meet the lender’s lock requirements. You’ll feel more confident about buying your home when you know exactly how much you’ll pay each month. Floating, or not locking, could cost you thousands if mortgage rates shoot up after you sign a contract to buy a house.
Is my rate locked?
Call your loan officer to lock the rate. Don’t email or leave a voicemail. Since rates are in a constant state of flux, Friday’s rate could be higher on Monday.
The lender must confirm your lock within 3 days. 3 days seems like a long time, but many banks, credit unions, and mortgage brokers still use older technology and they need 3 days to comply. Most mail your confirmation via the US Postal Service and some send it by email.
We confirm rate locks within one hour by emailing you 3 documents. All you need to do is click-to-sign. The three documents are:
- The Changed Circumstance Detail Form records the day you requested the lock including any details.
- The Loan Estimate shows if your rate is locked at the top right of page 1.
- The Rate Lock in Agreement shows the details, including the expiration date and Discount Points - a fee you pay for a lower interest rate.
Can my rate change after I lock?
Yes, if you make changes to your loan application then your rate can 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.
Your rate will change if your mortgage rate lock expires before closing.
What if my loan doesn't close in time?
Do everything you can to close your loan before your rate lock expires. You agreed to close within a specific time period when you locked your loan. If you don’t make good, then the lender won’t either.
Sometimes it’s out of your control. If you let the rate lock expire, then you’ll need to relock before you close. If mortgage rates are higher when you relock then your rate will go up. To make things worse, relocks come with a fee. So you could end up paying a lot more for your mortgage than you bargained for.
Ask the loan officer for a rate lock extension before the expiration date. Although you’ll pay a fee for to extend the rate lock, it won’t cost as much as a relock and you get to keep the initial 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.
Before you commit to a loan offer, or give your Intent to Proceed, ask the loan officer how much it will cost for a rate lock extension, just in case you can’t close on your mortgage before the rate lock expires.
How do I track the rate lock and other important dates?
The lender ought to monitor your rate lock and notify you before it expires. Unfortunately, most lenders don't. You're left to keep an eye on the lock expiration plus all the other key dates, including the due date for the mortgage commitment and the closing date. If any of them slip, you might end up like Jerry.
We have a solution that makes it easy for you to navigate the mortgage process. Our mortgage Closing Plan is a timeline that includes all the key dates and deadlines customized for your home purchase. Think of it as a roadmap that gives you a sense of direction so that you stay focused on your goals. It's just one of the tools we use to consistently deliver a reliable home buying experience.
See how it works.
By the way, as you shop around for a lender, keep in mind that the company offering the lowest rate isn't always your best choice. Consider the lender’s experience, customer service, and reputation too. Delays and lack of communication - especially with key dates like your rate lock - may end up costing you much more than a fraction of a percent in rate. Check for real social proof. Start with Google and Facebook reviews.