Locking In Your Interest Rate
“Locking-in” is an essential, yet simple step in the home buying process. Your loan officer will talk to you about “locking-in” after you have chosen your loan program (for example: an ARM, 30 or 15 year Fixed mortgage), have a pre-approval and a firm settlement date. Other than selecting your interest rate and making sure the length of the lock goes at least to your settlement date if a purchase, there isn’t much else to be concerned with. But keep reading because there are some related concepts you may want to know.
When you lock in a loan, you lock in for that day’s pricing on the interest rate you have chosen with your loan officer. Every mortgage loan has either discount points charged to buy the interest rate down or a credit. A credit is applied to your closing costs to reduce what you have to bring to the table out of pocket. Discount points are used to secure a lower interest rate which in turn lowers your monthly mortgage. The key for either is to make sure your discount point or credit does not outlive the usefulness as it relates to your loan.
Your lock is good for the time that we select to process and close your loan. The lock must extend through that period otherwise your interest rate will go into a “worst case” if the market interest rates are not as good as what we locked into from the start. Therefore it is important to realize that time is of the essence even more so once a lock has been committed on your behalf.
When your loan officer gives you the opportunity to lock-in, it’s smart to give your OK. Floating your interest rate during the loan process is to gamble because “rates can change without notice.” Financial markets can improve, so there is an up-side to wait, but if markets decline, you may not only lose money but also your loan approval. So the downside is much worse. Once you lock-in, your pricing won’t change, regardless of what happens in the financial markets – because, you are “locked-in.”
Take a look at our mortgage calculators to experiment with a few possible interest rates.