Q: “Our loan officer has advised we ‘lock’ the rate we have selected, but we are not clear about how that all works. What does it mean exactly, and what do you recommend?”
A: Good question. When you make a mortgage application, you should be sitting or speaking with an advisor who will explain what is available from their company. Each one may be a little different. Basically, a “rate lock” means you have chosen an interest rate for your transaction and locked it in so that it is guaranteed to you for a particular period of time.
When your application is complete (credit history, income and asset verification, as well as any other documents requested), a loan officer can give you choices of interest rates and terms (the costs) for those rates that are available within the program you selected. Sometimes your choice of programs will be limited by your credit scores, your down payment in the transaction or equity in a refinance, or possibly several other factors that will be discussed with you.
Mortgage rate locks are for a set period of time. Any cost for this protection will not only depend on your particular circumstances, but also on the length of the lock period needed, the shorter the period, the lower the cost.
For example, a 15-day “lock” is cheaper than a 45-day lock, just because the company you are dealing with has to be able to cover that interest rate and guarantee it to you for that period. The shorter the lock time, the less risk the mortgage lender has to absorb in tying up those funds. You will want to lock in your rate to match the time needed to close your transaction.
I always recommend choosing a “lock-in” rather than “floating,” because most people are more comfortable knowing exactly what their terms will be when they close escrow. If the market fluctuates a little after the lock is chosen, up or down, so be it. At least it is one less thing to worry about.
Karen Davis NMLS #245892 is Regional Vice President of The Mortgage House, Inc. She has over 36 years’ experience in the mortgage banking industry. Your e-mailed questions are welcomed through her website at: www.themortgagehouse.com or call 1-800-305-9731. This article is a forum to explore real estate principles. It is not intended to provide tax, legal, insurance or investment advice and should not be relied upon for any of these purposes.