Are interest rates fluctuating? Get rid of uncertainty by locking your rate. Here’s when you should lock for best results.
When Can You Lock Your Rate?
There are a few things that need to happen before you can lock your rate.
- You need to have specified a property and paid for an appraisal
- You need to have set a closing date
Some lenders may offer you the option to lock a rate before these things happen, but they will lock you at higher than market rates and may charge a fee. Always negotiate locking rate fees if possible.
Once you are under contract on a property you should definitely be locked in on your rate to avoid rate spikes and higher interest than estimated on your home loan.
Exceptions include if the market rate is falling rapidly, in which cse you may want to wait a bit, or if you are making an offer on a distressed property which often leads to delays in closing. Your rate does expire at the end of a set period (usually 30 to 60 days) and you’ll have to pay a premium to extend it.
Locking When Interest Rates Are Low
Floating your rate after you are under contract can be dangerous. If interest rates go up by only a single point, it can mean tens of thousands of dollars more in interest on your loan. It’s almost always better to lock your rate as soon possible while leaving enough time to close. You can absorb a rate falling a little as just the way things go, but a rising rate can cause you significant financial distress.
Expiring Rate Locks
Remember that a rate lock has an expiration date. You run the risk of losing your locked rate, or having to shell out for an extension. Making your lock time period fall within a week or two past the closing date is ideal, as it gives you extra waiting room in case something delays closing. Then work as hard as possible to make sure if closing is delayed, it isn’t because of you.
The Best Time to Lock Your Rate
Mortgage rates are changing daily, sometimes hourly. There’s no magic time to lock your rate. Your LO is your best source of information on rate shifts, and can let you know if a big economic shift is on the horizon that would influence your choice of when to lock. Just be aware that any advice or information they can give you will be purely speculative, as no one can predict with certainty what rates will do. Sme of the biggest interest rate jumps and dives happened when no-one, not even professional traders, could have predicted it.
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