Lock in a Mortgage Rate

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A mortgage rate lock is a written agreement between a homebuyer and a lender that guarantees the mortgage interest rate according to certain conditions. Since interest rates can change from day to day, it is very important to get a rate lock when shopping for a home if you want to count on a particular rate. Getting the best interest rate possible can save you thousands of dollars over the term of the mortgage.

Steps

Shopping Around

  1. Visit several lenders to request interest rate quotes. By shopping around at several mortgage lenders, you can determine which ones offer the best interest rates.[1][2] Finding the lowest rate can save you significant amounts of money over the term of the mortgage.
    • You may be able to get a general sense of mortgage rates in your area by using online tools offered by real estate websites, banks, or other lenders.[3][4] However, to get a specific quote, you will need to contact or visit lenders.
  2. Understand the difference between a rate lock and a rate quote.[5] A rate quote is simply an estimate of what your rate will be. If interest rates change, your rate will change. A rate lock, however, is a legally binding promise (qualified by any special terms) that you will get a specified rate from a lender.
  3. Understand the point system.[6][7] A very common way for lenders to charge borrowers for locking in a mortgage rate uses something called the point system. This means that a varying number of “points” are charged depending on the conditions of the rate lock. These points translate into different fees. For instance:
    • In many cases, it is free to lock in a rate for up to 30 days (in some cases, up to 45 days).
    • Typically, rate locks are guaranteed thereafter in 30-day increments, with higher fees for longer terms. A 90-day rate lock, for example, will cost more than a 60-day rate lock; a 120-day rate lock will cost more than a 90-day one.
    • One point equals one percent of the loan amount.[8]
  4. Find out which lenders offer a mortgage rate lock float down. While locking in a mortgage rate can protect you against interest rate hikes, it can also prevent you from benefiting if interest rates fall.[9] Some lenders, however, offer a mortgage rate lock float down, which allows you to make a one-time decision to exchange your locked-in rate for a lower one.[10] Thus, it can be in your best interest to find a lender which offers this possibility.
  5. Know which lenders include a rate cap with mortgage rate locks. Some lenders require a clause in mortgage rate lock agreements that allows the quoted rate to rise by a certain limited amount if interest rates rise before you close on a house. This is known as a rate cap.[11] Even with a rate cap, a mortgage rate lock agreement offers you some protection from rising interest rates. However, by shopping around for interest rates you will determine the best agreement terms, and find out if any lenders do not require a rate cap.
  6. Know when it is time to lock.[12] Since mortgage rates can rise, it is a good idea to see a rate lock. There can be considerable pressure to do this as soon as possible. However, this isn’t always the best idea.
    • In some cases, mortgage rates might fall. Talk to your realtor or another knowledgeable individual about current trends and expectations for rate activity.
    • Some lenders charge a rate lock deposit, which you may or may not want to or be able to pay.
    • Some lenders will lock in your mortgage rate at a slightly higher rate than the current rate. This allows you to continue to shop for a home while avoiding a rise in interest rates. However, if it turns out you did not need to lock in your rate, you will end up being charged more than was necessary.
  7. Let your interest float if you do not want to lock it in. If you decide that you do not want to seek a mortgage rate lock from a lender, then the rate will “float.” This means that your rate will be set at whatever the prevailing rate is shortly before your scheduled closing date.[13]

Locking In

  1. Review your lender’s rate lock form. Once you have decided on the best lender and/or interest rate, request to see a blank copy of the lender’s rate lock form, if possible. This will give you an exact sense of what to expect before submitting your own application. If you have time, you can have the blank form looked at by your realtor and/or real estate lawyer for approval.[14]
  2. Know what the fee will be, if any.[15] If your lender charges a fee for locking in a rate, make sure that you understand the fee amount and how it is related to the conditions of the rate lock (such as its length).
    • Rate lock fees can be several hundred dollars. In many cases, a rate lock fee might be refunded, unless your mortgage application is canceled.
  3. Request the rate lock.[16] When you are ready to lock in your rate, contact your lender. Depending upon the institution, you may have several ways to make the request (phone, fax, in-person visit, etc.). However you initially contact the institution, it is important to get the request in writing.[17] Send a document that specifies the rate you would like to lock your mortgage in at, and any applicable points or other terms. Make sure that your request is signed and dated by you and any co-borrowers.
    • Most lenders will connect you with a mortgage consultant or office to contact when you are ready to request your rate.
    • Your realtor or real estate attorney can help you in preparing this request.
    • When sending your request, make sure that you have completed any application and made any deposit your lender requires to get a mortgage.
  4. Get the rate lock agreement in writing. Your lender should send you a letter confirming your request for a rate lock within a specified period (usually a brief one, such as 5 days).[18] If your request is approved, you should get a written confirmation from your lender. Make sure that the confirmation displays:[19][20]
    • The agreed-upon rate
    • Whether or not the rate is guaranteed
    • The property address
    • The loan amount and program (i.e., the mortgage period)
    • The lock in fee
    • The lock in date
    • The lock in expiration date
    • Any special terms or conditions
    • The lender’s and borrower’s signatures
  5. Know when your rate may change even after a rate lock request.[21] Making a rate lock request and even being approved for one are not absolute guarantees that an interest rate will not change. In certain situations, you can re-negotiate the rate lock terms; in others, you will either have to accept the new rate or seek a new mortgage. For example:
    • If rates change in between making a lock in request and its approval, the original request will be void. You will then have to re-negotiate the request, if desired.
    • If you change the kind of loan you are requesting, or the terms of the loan (for example, the amount of your down payment), your rate can change.
    • Your rates can also change if your credit score rises or falls during or after the process of making the rate lock request.
    • If your income cannot be verified, lenders may not be able to honor a rate guarantee.
    • A change in the appraised value of the home you are seeking to buy can also result in a change to your rate.

Warnings

  • Unscrupulous lenders do unfortunately exist, and may try to claim a rate is locked when it is not. To prevent this problem, work only with reputable lenders and make sure to get all requests and agreements in writing so that there is a record. In addition, have your realtor or real estate attorney review these documents to make sure that everything is in order.

Related Articles

Sources and Citations

  1. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  2. ↑ http://www.hud.gov/buying/booklet.pdf
  3. ↑ http://www.bankrate.com/mortgage.aspx?prods=216&loan=165000&perc=20&fico=740&points=Zero&market=285
  4. ↑ https://www.hvfcu.org/rates/loans/mortgages
  5. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  6. ↑ https://www.vacu.org/Learning_Planning/Your_Home/Mortgages/Mortgage_Rate_Lock-In.aspx
  7. ↑ http://www.investopedia.com/articles/pf/08/lock-mortgage-rate.asp?layout=infini&v=1A
  8. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  9. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  10. ↑ http://www.investopedia.com/articles/pf/08/lock-mortgage-rate.asp?layout=infini&v=1A
  11. ↑ http://www.investopedia.com/articles/pf/08/lock-mortgage-rate.asp?layout=infini&v=1A
  12. ↑ http://www.investopedia.com/articles/pf/08/lock-mortgage-rate.asp?layout=infini&v=1A
  13. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  14. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  15. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  16. ↑ https://www.vacu.org/Learning_Planning/Your_Home/Mortgages/Mortgage_Rate_Lock-In.aspx
  17. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  18. ↑ https://www.vacu.org/Learning_Planning/Your_Home/Mortgages/Mortgage_Rate_Lock-In.aspx
  19. ↑ http://www.federalreserve.gov/pubs/lockins/default.htm
  20. ↑ http://www.dfi.wa.gov/sites/default/files/forms/interest-rate-lock-agreement.pdf
  21. ↑ http://www.consumerfinance.gov/askcfpb/143/whats-a-lock-in-or-a-rate-lock.html
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