When you get a mortgage rate lock, you make sure that you are guaranteed to get the price for the money you are going to borrow to buy your house. That is why it is such a big relief, as in some cases it can fluctuate pretty much. The term of lock-in depends on your preferences and needs. In such a way, you can lock the rate either for 30, 45 or 60 days in advance.
As soon as the lender approves your application, you have to notify him about your decision. Otherwise, you should think that he won’t lock the rate automatically, since he usually doesn’t do it unless you ask for that.
One thing that should be mentioned is that in some cases it requires some payment from your side. But fortunately, in some cases, you don’t have to pay for it at all if you use the services of the lender’s partner.
When you have secured your mortgage rate, you can feel relieved as you know that your monthly payments won’t increase in case the market becomes chaotic. But you should keep in mind that the lock in is not permanent. And in case you spend too much time on closing your deal, it expires and the interest rate increases again.
So getting a mortgage rate lock requires certain timing. That is why you shouldn’t secure it at the beginning of your search, as it takes time to sign papers. It is better to do that when you have already signed the purchase agreement, in such a way your rate lock will cover the whole period of closing the deal.
But there is another variant that is offered by some lenders. They give you the right to reduce your interest rate if something happens with the market. That is why in such a case you get an extra protection and also you have an opportunity to lower your interest rate if the rates go down. This type requires additional charges, but it can be really significant.
The other thing that should be mentioned is that besides the interest rate there is also Annual Percentage Rate or APR. It is the sum of the interest rate and all additional fees and points. So you shouldn’t be fooled by the low interest rate that has enormous extra fees.
It is necessary to discuss with your loan officer what day is best for locking. That is why it is better to lock it not on Monday, but on Friday. As in the first case the market is quite volatile, while Friday is a calm day.
All in all, you are gambling with the probability that the interest rate will go up. In such a case you will benefit significantly, but if it will go down, you will still have the old rate (unless you have float down). That is why it is a gamble, but it is quite safe in the rising market. But you never know what will happen, thus it is better to be protected.
Remember to discuss with your lender extension fees. In case you are late with closing the deal due to the slow work of the inspector, you will require an extension, that is why it will cost you money, but you should discuss it beforehand.