When purchasing a home or refinancing your mortgage, locking in your interest rate is an important step. This is your security against rates going up while your loan is in process. A rate lock is a three-way agreement between the borrower, lender, and the investor that says the loan will be done at a specific interest rate, for a specific cost (or credit), on a specific property.
Here are five important things to know about locking in your rate:
1) You, the borrower, are in charge of choosing when to lock in your rate, and you must instruct your loan officer when to do that. Neither the loan officer nor the lending institution chooses the day for your lock.
2) You need to call your loan officer to request the rate lock. Do not leave something of this importance to the uncertainty of email or text, because you have no way of knowing if your loan officer will see your message before the rate you want changes. Interest rates can change midday when the market is volatile.
3) Within 48 hours of locking in your rate, you will receive a confirmation of the rate lock. If you do not receive confirmation in writing (email is fine), then do not assume your rate is locked. Call your loan officer again to verify and ask for a written statement.
4) If interest rates go down after your rate is locked, your rate is still locked. This is not a one-way contract where you are protected if rates go up (and the lender takes the loss), but the reverse is not true. That said, if rates drop by at least half a percent (0.5%), then lenders will often compromise with a decrease of .25%.
5) Your rate lock includes an expiration date. If your loan does not close and fund by that date, then you have two choices.
First, you can buy a rate lock extension. It is a per day fee, and you need to ask your loan officer what their company’s policy is. This option makes sense if rates are higher.
Second, you can take the new, higher rate. If rates are the same or lower than when you locked, the lender will extend your current rate at no charge.
Note: You cannot get a lower rate by letting your lock run out and then grabbing the new, lower rate.
Another note: If the rate lock expires due to the fault of the lender, you do not get to demand a free extension. You have no recourse. That is just the way it works. This is one reason why I offer my clients a Peace of Mind Guarantee that includes closing on time (or the lender pays)*, best pricing, and timely updates.
If you have any additional questions about locking in an interest rate, let me know. The comment button is at the top of this post.
* This is for my mortgage clients. I am licensed in CA and WA states. For details on the Peace of Mind Guarantee, simply ask and I will email you the official flyer.