How Long Can You Lock In a Mortgage Interest Rate?
Mortgage rates can change. As the Federal Reserve Board explains, the terms that you’re quoted when you’re shopping for a home loan are only good for that moment in time. Even if you move fairly quickly, you may find that things have already changed when you’re ready to purchase a home. That’s where a mortgage rate lock comes in handy. Also known as a lock in or a rate commitment, it’s an agreement with a lender to hold an interest rate for a specified period of time. How long can you lock in a mortgage interest rate? While 30 to 60 days are the most common durations, some lenders will go as short as 7 days or as long as 120 days. PrimeLending has a lock-in period of 45 days.
How Do Mortgage Rate Locks Work?
As NerdWallet reports, examining how rate locks behave in some common scenarios can help you understand how they work:
- When mortgage rates remain steady: If interest rates stay the same in the weeks before closing, you may feel that the rate lock was unnecessary. Then again, you may consider the peace of mind that came with knowing your budget for closing was set was worth the price of the lock.
- When mortgage rates rise: If interest rates rise, the mortgage rate lock will kick in to protect you. Your loan will still get the lower interest rate that you locked in.
- When mortgage rates fall: If interest rates fall, you may miss out. However, some rate locks come with a float-down option* that gives you a chance to take advantage of falling rates. This is generally a one-time feature, so be sure to trigger it wisely.
What Does It Cost to Lock In Your Mortgage Rate?
According to Zillow, the cost of locking in your mortgage rate varies. You may be charged a flat fee or a percentage of the mortgage. When rate locks are for 60 days or less, they typically cost between 0.25 percent and 0.50 percent of the total loan. Longer-term rate locks will often cost more. Before agreeing to a rate lock, be sure to read the terms carefully. Check to see if a float-down option is included. If it is, ask if using it triggers an added fee.
When Should You Lock In Your Mortgage Rate?
Is a mortgage rate lock a good choice for your situation? When is the right time to lock in your mortgage? To help you decide, Experian suggests four scenarios when locking in a mortgage rate makes sense:
- You’re on a tight budget. When your budget is tight, locking in your rate gives you a clear picture of what your monthly mortgage payment will be. That makes planning easier. If you don’t lock your rate, rising rates could push your payment higher and make your budgeting more difficult for years.
- The Federal Reserve Board is meeting. Interest rates often creep up after the Fed meets. If you’re not closing until after a scheduled meeting, taking the precaution of locking your rate beforehand may result in significant savings.
- Interest rates are going up. This is probably the easiest time to decide that you want to lock in your mortgage. Be sure to leave enough time for your mortgage to close.
- Closing is set, and rates are competitive. When interest rates are competitive, the choice is a little trickier. If you have a firm closing date, locking in your mortgage rate ensures that you keep that winning rate. When you don’t have a closing date, you may want to wait. Any delay could result in an expired mortgage rate lock.
Are you searching for the ideal mortgage for your housing needs? Reach out to the home loan experts at PrimeLending West Texas.
*Conditions and restrictions apply. Review the Float Down Option disclosure for full details.