With mortgage rates constantly fluctuating, many lenders offer the ability to lock in a specific mortgage rate. These provisions keep your interest rate the same for an agreed upon lock in period, regardless of whether national rates fall or rise.
However, while a rate lock period can have its advantages, it's not the right answer for everyone. Here is some more important info about mortgage interest rates and locks for homebuyers to be aware of:
Can you lock in a mortgage rate?
If you lock in interest rates on a mortgage loan, you can secure them from the time of approval until five days before closing. However, the lock only lasts until the end of your current loan, meaning your interest rates will no longer be locked if you refinance.
Therefore, timing your mortgage rate lock is crucial - you might even be able to get a lower rate on your second mortgage as well.
Is a mortgage rate lock worth it?
A rate lock has far fewer disadvantages than risk. An interest rate lock does not help to get the cheapest mortgages, but rather safeguards your buying power. The rate lock prevents a mortgage's interest rate from increasing and potentially pricing you out of your own home due to high monthly mortgage payments.
What is a float-down mortgage rate lock?
Various banks can lock the rates with what are called "float down" provisions. In these cases, the rate is lowered in a specific period after the loan approval. Whenever the price increases, your payment will match what you're quoted for.
While this can benefit many homebuyers, there is a risk that rates will never change in your favor. This would result in paying higher interest rates for the whole term.
Rate lock fees
Having a rate-lock may reduce your mortgage costs, but the process isn't free of charge. Generally, rate locks include a fee starting an initial amount, which increases over time. In some cases, mortgage lenders will charge a fee for extended locks. Make sure to go over the options carefully to avoid any unpleasant surprises down the road.
Should you accept a lock-in rate from your mortgage lender? Keep these factors in mind to make the best decision for your financial future.
About the Author
Kimberly Hering
Kimberly Hering's devotion to helping people achieve their real estate goals stems from her genuine enjoyment of the process. Whatever the task, Kimberly makes it her mission to get it done, however she can, without compromising her client's needs. Often, that means thinking outside the box. After working with Kimberly, clients describe her as being Trustworthy, Creative, Patient, Highly Skilled, Attentive to the Process and having a lot of Integrity.
After spending more than 15 successful years working on Wall Street, Kimberly transitioned into Real Estate, joining Alain Pinel Realtors, then moving to Zephyr, now Corcoran Global Living, in 2018. During her career on Wall Street, Kimberly was a Vice President working as an Institutional Equity Salesperson for Montgomery Securities for 10 years. She covered the top money managers throughout the US and Canada. She joined Jefferies & Co as a Senior Vice President managing the Western Region Institutional Sales group, while continuing to cover the top money managers.
Kimberly leverages her extensive experience selling equities to top money managers throughout the US and Canada, to successfully negotiating any Real Estate transaction seamlessly for her clients. Kimberly is well versed in Marin's neighborhoods, towns, cities, and education system.
Living in the Bay Area for 35 years, 25 years in Marin and having 2 sons in local Marin schools, Kimberly spends a lot of time volunteering in the community and serving on various local Boards. Kimberly has a collection of resources ranging from the best local breakfast spots to vetted contractors. With her reliable list of valuable resources, Real Estate experience and unsurpassed knowledge of Marin's many communities, Kimberly can guide her clients through every aspect of a Real Estate transaction seamlessly.
Relocating to Marin, downsizing, upsizing, first time home buying, final home purchase or sale, or a lot to build a dream home, no matter the undertaking, Kimberly works seamlessly until the job at hand is completed with 100% satisfaction.