Should You Lock-in The Rate?

A lock in rate is a lender's commitment to you to provide you with financing at a given costs provided that the loan closes within a set period of time.

A lock in rate is a lender's commitment to you to provide you with financing at a given costs provided that the loan closes within a set period of time. Typically this promise of a rate protection has a validity period, which can range from a few days to several months, but 30 to 60 days is typical. Other loan factors that can be locked include points and the float on the interest rates. There is no obligation for you to accept the loan. Sometimes, a lender charges a fee for the lock-in rate, but many offer the service as a way of attracting borrowers.

What should you look for in a rate lock? First of all, make sure you get the lock-in rate in writing. Next, ensure that the period of the lock in rate is long enough for you to complete the inspections, repairs, and to process the loan. Lenders typically provide you with a more attractive rate if your lock in period is shorter. Their intention is to force you to come to a decision on the loan faster. Similarly, the longer the lock in period, the more unattractive is the rate offered.

Lock-in rates are good for borrowers as long as the fee is not too high or rates are not falling. However, even if rates have fallen, getting the locked in rate may still be worthwhile if you consider the cost of the lock-in fee and other fees. Do the math. Calculate the amount the interest rate needs to fall in order to break even on the fees associated with obtaining a new loan quote – appraisals, credit checks etc.