Locking in a mortgage rate, or rate lock, means that the interest rate on your home loan won’t change between the time the offer is accepted and closing, provided there are no changes made to your application and closing occurs within a specified period of time. Interest rates on mortgages can change daily, some even change hourly. Rate locks are normally available for 30, 45, or 60 days, sometimes even longer. Consequently, if you don’t lock your rate in, it can change anytime.
Although one would think that locking in their interest rate is beneficial, there can be a drawback to this. For example, if more time is required to complete your transaction, it may be costly to extend it. Furthermore, it may lock you out of a lower rate if rates drop after you get your loan. Some lenders may issue a Loan Estimate to lock your rate in while others might not. You can check this by looking at the top of the first page of your loan estimate to find out if your rate is locked in and for how long it will remain that way.
4 Reasons Your Interest Rate might change
Additionally, if there are changes to your application such as your credit score, the loan amount, or your verified income, your rate can change even though it’s supposed to be locked in. Here are 4 additional reasons why interest rates might change despite the fact that it’s locked in:
- The appraisal on the home you’re interested in buying was lower or higher than you anticipated.
- You decided to change the amount of your down payment or the type of loan you want.
- Your credit score changed because you applied for new credit or missed a payment on a credit card or existing loan.
- Your lender was unable to document any bonuses, overtime, or other income that you listed on your application.
Important Questions to ask the Lender
Remember, policies on rate locks typically vary from one lender to the next. To avoid any unpleasant surprises, ask the following questions:
- If I lock in my rate, what happens if interest rates drop?
- If I lock in my rate, what conditions would cause it to change?
- Is a longer or shorter rate lock available and how much will it cost?
- What happens if closing is delayed and my rate lock expires?
- What is the rate lock time frame on my Loan Estimate?
There might be a lot of confusion about the right property to buy. That is why you need to consult with one of our financial experts. For more information about locking in your mortgage rate, call Front Range Mortgage today.
(719) 540-2020 Colorado Springs
(303) 524-9907 Denver
(970) 283-3500 Ft. Collins