Understanding Rate Locks

The interest rate on a mortgage has a large impact on payments and costs.  Available rates change all the time, based on government policies, financial conditions and more.  In the weeks-to-months required for a home purchase, rates could go up (or down).  So most lenders offer mortgage customers options for a guaranteed rate — the common term is ‘rate lock.’

The availability of rate locks, and the factors that are involved in a lock, also vary with market conditions.

Of course, the buyer’s financial profile will affect availability as well:

  • What is your credit score?
  • How solid is your credit history?
  • What is the LTV ratio of the offer on the property?
  • Where is the property located?

Rate locks are usually available for:

  • An accepted offer, on a specific property,
  • For a given combination of interest rate and points,
  • For a set period of time,
  • Whether market rates go UP or DOWN.

The last point is key.  Accepting a rate lock could mean slightly higher-than-market costs if rates go down after you have locked.

At some point in the home-buying process, you may be offered the option of a rate lock.  Are mortgage rates changing rapidly? Trending up, or down?  Are there factors about the transaction, or construction schedules, that might matter?

Deciding whether to lock or to stick with market conditions and “float” is a judgement call.  Get advice, read and research, and then make the best decision for your situation.

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