A rate lock, or lock in, is a guarantee of a rate by a lender for a set period of time. This protects you during the loan process from interest rates going up, which could ultimately cost you more money at closing, cost you more money monthly in the monthly payment, or in a worst case scenario, cost you your dream house, because it changes your debt to income ratios too drastically.

The period of time that the rate is locked in usually correlates with the time it will take the lender to finalize the mortgage. So the earlier in the process you lock in the rate, the longer you should lock in for. But what you want to be sure of, no matter how long you lock in for, is what happens if you have not closed when the rate expires. Every lender has different policies, but it is customary for the lender to honor the rate past the expiration date if the loan did not close due to the lender’s inability to close on time. So if you do everything you are supposed to and the lender is held up for any reason, that should not cost you anything. That being said, it is also customary for there to be an associated cost to maintain the rate lock if the expiration date passes because of you. So, if you are slow in getting documentation in, gave inaccurate information on a loan application, etc., you will be held liable to pay the cost to keep your rate.

So with a basic understanding of what a rate lock is, and how it functions, it is also important to consider when to lock a rate. For many, the answer is as soon as possible. We do not have crystal balls, and cannot guarantee where rates will go over a 30 day period of time. So if a rate sounds good and creates a monthly payment and closing costs which are acceptable, it is often a good idea to lock in a rate. That being said, your mortgage professional will walk you through that process, as there can be other considerations when locking a rate.

If you have any questions about rate locks and how they could affect a home you are looking to buy, please contact me, and I will talk you through the process. If you have anything to add about mortgage rate locks, how they work, or when to lock them, please leave a comment.