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Since the coronavirus pandemic hit, mortgage rates have been fluctuating by the day-- sometimes by the hour. During the processing and underwriting stages of your mortgage process, the rates can rise enough to cost you hundreds, if not thousands of dollars in interest over the course of the loan.
As a homeowner, you want the lowest possible interest rate on your mortgage. There are many things that drive mortgage rate movements, such as inflation and economic growth, so the most important thing for you to do is lock in your mortgage rate.
Whether you're buying a home or refinancing, without a rate lock, you'll be at the mercy of the mortgage market. An increased rate will mean paying more interest.
What Is a Mortgage Rate Lock?
A mortgage rate lock is an offer given by mortgage lenders to prevent the interest rates from rising between the time you apply for the loan and the time you close on it. However, you have to close within a specified timeframe, and you may have to pay a fee for it. Though in some cases, this timeframe can be extended for construction loans.
Once the rate is locked, it won't go higher, but it also won't go lower. However, you have the option of a one-time float down where you can lock again at a lower rate when the rates drop. A float-down will, however, potentially cost you higher fees, given that it'll increase the lender's risks.
The Best Time to Lock a Rate
You can lock your rate as soon as you get a pre-approval for your loan, so long as you're comfortable with the interest rates and the monthly payments. Predicting mortgage rates is nearly impossible, so it's a matter of finding the best rate and locking in. However, you can wait for the seller to accept your offer.
The thing is, if you lock in too early, you may extend the given deadline. Most lenders will offer anything from 30 to 60 days, after which you'll be charged extension fees and get the rate that's prevailing during that time. Terms that run more than 60 days tend to be quite pricey. The lender is also at liberty to void the rate if anything on your credit report or mortgage application changes before the closing date.
How Long Can the Float-Down Last?
Basically, most lenders offer 30 to 60 days on a float-down, and you can wait until the day of underwriting. However, if you're willing to pay extra fees, that time period can be extended.
How Much Do Rate-Locks Cost?
The rate lock fee varies by lender, and it highly depends on the term and amount of your mortgage loan. It may also depend on the lock-in period, and it's wise to ask your lender from the onset. Some lenders may claim that the lock-in rate is "free," but they'll only back it up in the rate they offer you.
What Happens If the Timeframe Expires?
Your lender could offer to extend your period for a fee, but some may not be open to the idea, and you'll lose your rate and any points you had accumulated. In this case, your loan will be based on the current rate.
If an extension is allowed, it's advisable to pay the fee if the rates have gone up to avoid having to get your mortgage at the current rate. Alternatively, it would be best if you gave yourself some time cushion. If you think you might be able to close within 45 days, get a locked rate for 60 days instead.
Getting More Information
A mortgage rate lock will protect you from the fluctuating mortgage rates, so it's advisable for you to get one when your loan is approved. If you have any more questions are mortgage lock-in rates or mortgages in general, consider talking to our mortgage experts at First Savings Mortgage. If you're looking for a mortgage in the DC Metro area, please contact our loan officers, and they'll be more than happy to help.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.