Deciding if you should lock in your mortgage rate is a question many homebuyers lose sleep over. No one wants to make the wrong decision. You don’t want to wait and see rates go up, but what if you lock and rates go down? You like the idea of having this guarantee, but you are not quite sure when to do it, or if you should at all. To help with your decision, below is a list of nine items you need to know about rate locks.
1. Mortgage rates rise when the Federal Reserve increases rates, so keep your eye on this.
2. Rates do have an expiration date. If you lock in too early, you could end up being forced to file for an extension, which typically increases the rate.
3. A float-down option is available to be added to a lock agreement. This gives you the chance to grab a lower rate if they drop more after you locked one in. These are not free, but if the market is really fluctuating up and down it could be in your best interest to add this provision.
4. If rates go down, you can’t just abandon your locked rate and start over without expecting to pay a fine.
5. Rate locks are not open-ended; they usually last anywhere from a couple of weeks to 60 days. Shorter lock periods are less expensive. You can get a longer lock (90 days, for example), but the rate and fee will be higher. In most cases you don’t want to lock a rate in until you are set on a house.
6. Not all fees for rate locks are structured the same. It can be a flat fee, but it may also be a percentage of the total amount of the mortgage.
7. Mortgage rate locks are agreements made with lenders, not brokers.
8. If you wait too long to lock yours in – hoping rates will go back down – you could end up losing your dream home if the current rate puts your debt-to-income ratio too high.
9. Rate locks for 45 days are generally the most popular option.
Mortgage rates are often compared to gas prices because you can watch them creep down slowly every day and then all of a sudden, they jump back up again. Of course, the day they increased was the day you were going to actually fuel up your tank! Rates can be unpredictable but if rates in your area have remained consistent for a period of time, then a lock rate might not be important to you; but if the rates have been all over the place, a locked rate will offer peace-of-mind during what can be a stressful process.