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When Should I Lock my Interest Rate?

If you worry that rates might rise between the closing date and time of application, you might be thinking about locking the interest rate on your home loan. It’s important to pay close attention to this rate because even the smallest rise in percentage can result in thousands of dollars in interest.

That is to say, you can potentially pay less by locking your interest rate on your home loan. In fact, if you get the timing right, this interest lock might save you many thousands of dollars at the very least!

But what is a rate lock exactly?

Understanding the Rate Lock on Your Home Loan 

A rate lock refers to an option in which you can freeze the interest rate on your home loan. Your lender will essentially guarantee this rate until the end of a specific period. With a lock in place, this simply means that you also don’t need to worry about any fluctuation in the interest rate of your loan.

Interest rate locks last for up to three months or more but this is entirely dependent on your lenders conditions. It might also be free but then some lenders change a fee for this rate lock and further fees for longer periods.

Now, let’s consider the best time to lock the interest rate.

The Best Time to Lock the Interest Rate on your Home Loan 

You will almost always need to wait until the loan period is finished to request a rate lock on your home loan. For this reason, many homeowners have no option but to wait but then there’s also the risk of locking an interest rate too early. That is to say, if you request a rate lock too soon, you might miss out on an even better rate lock a short time later. At the same time, if you wait too long, you might also miss out on a more favorable rate lock in the near term.

A rate lock is usually more expensive when the period of time is longer. For example, a 60-day rate lock is more expensive than a 30-day rate lock, while a 120 day rate lock is even higher. With this in mind, it’s always a good idea to ask your lender for clarification about the rules and stipulations for a rate lock.

According to many experts, provided you are okay financially, it’s usually best to lock this rate as soon as possible. It’s a reasonably fast process but the idea for locking the rate quickly is that this is historically the best option.

Final Thoughts

Every circumstance is different but a rate lock can end up saving you thousands of dollars on your home loan. It’s also a very quick process and one that many experts insist should happen as soon as possible. At the same time, it’s best to ask your lender for clarification around the rules and when it comes to timing a rate lock, there’s really no viable way to enact perfect timing. To learn more about locking your interest rate and the pros and cons to waiting, contact a salary-based loan officer at City Creek Mortgage today.


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