What Is a Mortgage Interest Rate Lock?

Say you've been shopping mortgage interest rates, and have been offered a deal you can't pass up. So you filled out the loan application and submitted it for approval. While waiting to get the approval, the market fluctuates and interest rates go up and down. Wouldn't it be nice to have a guarantee (or something close to it) that the deal-of-a-lifetime interest rate, that enticed you to go for the loan, will not change by the time your loan gets approved?

This is exactly what a mortgage rate lock, also called a mortgage lock-in or rate commitment, does: it locks in a certain interest rate and points for a specified amount of time, protecting you from market fluctuations and interest rate increases.

Therefore, as you shop rates among different lenders, don't rely on the interest rate and terms the lender quotes, unless the lender is willing to offer a lock-in. A mortgage rate lock is the only guarantee that you will receive these terms at the time your loan is approved.

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Get the Mortgage Rate Lock-In Writing

Some lenders will only lock-in the interest rate, and not the terms or points associated, while others will lock-in the interest rate, points and terms. This is why it is crucial to ask for the rate commitment in writing, if possible. Not only will it prove to be useful should a dispute arise, but it will also allow you to fully understand how the lock-in commitment works. Some lenders may only offer a verbal commitment, which when it comes down to it, can be difficult to prove in the event of a dispute.

Also, it varies between lenders when they will lock-in an interest rate and points, it could be at the time you apply, during processing when the loan is approved

Does a Rate Commitment Expire?

Usually a lender will commit to a mortgage rate lock for a specified amount of time, anywhere from 30, to 60, to even 120 days. Ask your loan officer how long the loan will take to process, then you can gauge whether or not the lock-in commitment time is sufficient until your loan is approved and closed. 

This is one reason why it's crucial to provide your loan officer with all of the required documents to approve your loan quickly, because if the lock expires, the interest rate and points are no longer guaranteed, and the lender will likely offer the loan based on current interest rates and points.

Is There a Fee to Lock-In the Interest Rate and Points?

This is a good question to ask your lender, as some charge, while others do not.

If your lender does charge, you might re-think a lock-in if you're unsure of how quickly your loan will close. If there are some complicated issues, you might hold off, or, ask your lender if you can get a refund on the lock-in charges should your loan be denied. 

If your lender doesn't charge to lock, it's a good idea to lock-in the rate, especially if it's a low  one.

What Happens if Interest Rates Decrease?

Yes, it's true that a mortgage rate lock can prevent you from taking advantage of falling interest rates, but if you already have a good deal, then stick with it. It's unethical to switch to a different lender just to take advantage of a lower rate, as the lender is counting on the business, and probably already has an investor lined up to buy the loan. Keep in mind that both YOU and the lender committed to the rate lock.

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