Lock Interest Rate Tag

Until the interest rate is locked, the credit you receive (or the price you pay) for an interest rate can change minute by minute.  Once your interest rate is locked, as long as we close your loan within the allocated lock period, your interest rate and credit are secured.  Now, rather than worry about what is happening in the interest rate market, the focus will change to ensuring your loan closes within the allotted lock period.

Interest Rates and the Media

Between now and the time that your loan closes, you may hear the media talk about interest rates rising or dropping.  The truth is that the interest rate is not likely moving; but rather the credit or the cost to achieve that interest rate has moved.  In most cases, the change is minimal.  The media is very quick to alert their audience when mortgage pricing improves, but slower to act when the cost to achieve a particular rate increases.  In many cases, they will announce that rates are lower.  However, that may indicate that rates have decreased and are now back down to where they were a week ago.  Not truly a noteworthy headline.

What if Rates Drop after the Rate is Locked?

Generally speaking, once your interest rate is locked the pricing is set.  If there is a significant drop in interest rate (.25% or greater improvement), there are times when a rate lock can be adjusted.  However, we will always lock in a rate based on the best executed price for your situation.  Therefore, assuming the next best plan is .125% lower than the next best option, a rate movement of .375% is required before a change can be considered.  This is highly unlikely to occur within any lock period, and is not always an option regardless.  Therefore, the safe play is to consider your rate lock final once the pricing and interest rate have been locked in.

It is better to be locked and wish you were floating than be floating and wish you were locked.

Is a Rate Lock Final, Regardless of Loan Approval?

In order for a rate lock to be considered final, the loan must be fully approved.  If the lender with which we have locked in your rate denies your loan for any reason, the interest rate lock will be null and void.  If we are able to move a denied loan to another lender and get the loan approved, we will have to relock the loan based upon the market at that time.

Can Pricing for a Rate Change Once Locked?

The cost (or credit provided) to achieve a particular interest rate can change based upon credit score, loan-to-value and loan amount.  If there is a deviation from the original plan in any one of these details, the cost or credit for a particular interest rate can change.  The most common example is when an appraised value comes in lower than anticipated.  This may make the pricing for a particular interest rate higher or lower.  We will advise you should this become an issue with your loan. If you have any other questions, please let us know.  We are always here for you.

When buying a home there are a lot of decisions you need to make, but perhaps one of the most important is related to your interest rate: should you lock it in advance? Getting the best possible interest rate can help save you tens of thousands of dollars over the course of your loan. If you are in the process of getting a home loan approved and worried that interest rates might go up before you are ready to close, one option is to “lock in” your rate at the current low.

What is “Locking In” a Mortgage Rate?

Once you have a mortgage rate locked in, lenders must offer you a loan at that rate, regardless of what happens to rates between that time and when you close on the loan. There are a few restrictions on the process, though, including the time you can lock in a rate. Generally a lender will let you lock it in between 15 and 90 days before closing (at 15-day intervals). There is also a potential downside: if rates fall during that time you might be stuck with a higher rate.

To Lock or Not to Lock?

The decision of whether you should lock in an interest rate should be made based on your individual circumstances. Some of the main reasons you might consider locking in a rate include:

  • Reasonable expectation that interest rates will increase in the coming month(s)
  • Situations where even a small increase in the rate might cause problems for your budget
  • Deciding to refinance because current rates are much lower than the rate you have right now

The best way to decide whether you should lock in a rate is just to talk to your lender.

Timing Your Rate Lock

You can lock the rate as soon as you initial loan approval goes through, but it is time-limited, so most people wait until they have found a home they want to purchase to avoid having a rate lock expire before your closing date arrives. There is also a cost to locking in your rate for a longer term or if you lock it too soon and need to extend it, so you want to do it at the latest possible date to avoid these extra costs.

Working With Your Lender

The idea of a rate lock is to get the lowest possible interest rate for your mortgage loan, but what happens if you lock in a rate and then they drop again? In some cases you will have to go with the higher locked interest rate, but many times lenders have some flexibility and can work with you. However, since you did lock in a higher rate, the ability to lower it when market rates go down might come with a cost. If you locked in a little early and it expires before your loan closes you may be able to get an extension, but again, there might be fees associated with that.

There are also some situations where borrowers can lose their locked-in interest rate, the most common being a reduction in their credit score or a change in debt-to-income ratio. Keep that in mind, and don’t get into additional debt by racking up credit card charges, buying a new car, or taking out a new revolving credit line.

To find out more about locking in an interest rate and get your questions about the process answered, call City Creek Mortgage today.