When purchasing a home, you may have heard of locking in your mortgage rate. While the term mortgage is familiar to most, the concept of a rate lock may seem a little more foreign. Keep reading to learn more about rate lock periods, why you might want a rate lock, and how a mortgage rate lock period works.
As you probably know already, mortgage rates go up and down. More specifically, the interest rate you will have to pay across the term of your loan can get higher, and cost more, depending on when you purchase. A mortgage rate lock period, in essence, freezes this interest rate for a set period of time.
By obtaining a mortgage rate lock, your lender is guaranteeing you a specific interest rate over a set period of time while you work on the application process. For example, if the interest rate is 4.1 percent when you make an offer on a home, but rises to 5.7 percent during closing and underwriting, you will still pay the “locked” 4.1 rate. This guarantee prevents you from going through your whole application process and discovering at the end that the interest rate has gotten higher, costing you additional money you didn’t expect.
Rate lock periods run generally from 15 to 60 days, and the more days extended, the more expensive the locking becomes. Basically, most locks extend for the time needed to finance a traditional home and mortgage. You can get a longer period for your lock, but in choosing this option, you will most likely have a higher interest rate than you would by sticking with the standard timeframe.
In addition to opting for the shorter rate lock period, there are more ways you can get the lowest rate. Increasing your down payment can help create a better interest rate because you will have more equity from the start, not to mention a smaller total loan to pay off. You can pay points to bring down your rate for the life of the loan, which is a way of paying fees to the lender to reduce your long-term interest rate.
Shopping for a mortgage loan? We’ll be glad to talk about your mortgage needs and help you explore rates, interest, and more. Equibox Mortgage Inc. can answer questions about rate lock periods and many others. Give us a call at (562) 584-4408. Ready to get started? Apply Online Now.