What is a RATE LOCK and why do I want to do it?

A rate lock is a promise by the lender to honor a particular interest rate for a specific period of time.

You want to lock your rate in because this is what guarantees that you will have the locked in rate for the amount of years that your home loan program allows. Different lenders have different rate lock guidelines and different rate lock periods. One lender may allow you to lock a rate for up to 180 days (6 months) and another may allow you to go up to 360 days, or 1 full year on the rate lock. The longer time period you lock you rate in for the higher the rate will be usually. A 15 day, or less, rate lock will generally provide you with the best rate and pricing and a 90 day ratel lock will probably be at least .25%-.5% higher. Some leneders will even charge money upfront for a long rate lock, such as 6 or 12 months.

Always be sure your mortgage lender gives you a rate lock letter when they lock the rate. This letter will display the mortgage terms and how long the rate is good locked for and what the interest rate is.

No one can tell you exactly what interest rates are going to do from day to day and hour to hour so that is when rate locks come in handy. They protect you in a rising interest rate market however you are still locked even if rates decline once you have decided to do so. Being comfortable with the payment is a good time to lock in the rate.

Some banks offer a one time float down if interest rates decrease after an interest rate has been locked. In some cases, the borrower may have to pay for a float down.

Make sure you review your rate lock with your mortgage broker and/or real estate agent. In the case of a refinance your rate lock should extend a couple days past the end of your rescission period, which will be a full three business days after your closing day. In the case of a home purchase you should make sure the rate lock lasts a couple days past your closing day.

» DISCLAIMER: The information contained in this article on 'What is a RATE LOCK and why do I want to do it?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.