When to Lock in a Mortgage Rate

Know When to Lock-In a Mortgage Rate When you are preparing to get a mortgage, one of the steps you can take is to lock in your interest rate. This is when you sign a formal agreement with your lender that solidifies what interest rate they will use for your mortgage, and how many days you have to get your mortgage closed at that rate.

A loan lock refers to a lender’s promise to offer a borrower a specified interest rate on a mortgage and to hold that rate for an agreed-upon period of time. How a Loan Lock Works A loan lock.

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Traditionally, a lender will lock an interest rate between 30 and 60 days with no fee. After that, the borrower might have to pay a fee to extend the rate lock. The extension can be for 90 days to as many as eight months, depending on the lender. For people who are doing construction loans, for instance,

With a rate lock, you are safeguarded from rates rising. For example, you lock in for 60 days at 3.75 percent. rates creep up to four percent half way through your lock period. You are still entitled to your original rate.

A 30-day rate lock might cost the borrower one-half of a point; whereas a 60-day rate lock might cost one full point. Points are a percentage of the loan amount. A .5 percent rate lock on a $200,000 loan is $1,000. These fees are not paid up front; they are paid at closing.

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A mortgage rate lock is an offer by a lender to guarantee the interest rate of your loan for a specified period of time, and you may have to pay a fee for it. The lock period usually extends from initial loan approval, through processing and underwriting, to loan closing. However, it can be an extended period for construction loans.

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The conclusion is that you should lock-in your mortgage rate when building a home if you are satisfied with the interest rate that is offered to you. You might not be able to lock-in the rate unless you pay mortgage points, so you have to decide if you want to spend that money to lock-in the rate or invest it somewhere else.