Your agent can help you find a lender, but decisions about rate locks are up to you.
If you've ever had a mortgage before, you've heard at least one person - perhaps your agent or broker - talk about locking in your rate. While you probably have a general idea about what a rate lock means, there's also probably more to it than you realize.
Getting a rate lock means the interest rate that you're quoted by the lender is guaranteed for a period of time. But there are different types of rate locks, and each one has its own set of particulars.
Rate Locks are Available for Different Terms
Most rate locks offered by lenders are guaranteed for 30 days or 60 days, says Mortgage banker, Craig Berry, for The Mortgage Reports. However, they're assigned in 15-day increments. If you get a 30-day rate lock, your guarantee covers two 15-day increments.
The lowest rate lock is 15 days. From there, you may find 30, 45 or 60-day guarantees. And while 60 days is the most common higher rate lock, you might find a guarantee for longer than that. Expect to pay more for it.
Different Rate Lock Periods Have Different Fees
With a 30-day rate lock, you'll typically have a guaranteed rate with basis points equal to the market rate, says Berry. Basis points are equal to 1/100 percent, says The Nest. If you take a shorter rate lock period of 15 days, you'll pay less in fees, less in basis points. Opt for a 45-day rate lock, and you'll pay more in basis points.. With a 60-day rate lock, you'll pay a lot more.
Other rate lock periods are available to certain buyers, and you'll pay fees up front for them. These longer terms, which can extend to one year or beyond, are often reserved for new construction projects.
Find out of your rate lock is good for different loans, such as VA and FHA, in case you decide to switch.
Rate Locks Aren't Perfect
The idea of locking in your rate sounds ideal. While shopping for a mortgage, nearly everyone tries to time it just right in order to snag the lowest rate. And then with the rate lock, you're safe and the rate is guaranteed - it won't go up - as long as the loan closes within that timeframe.
But if you need a longer rate lock for construction, rates might drop before you close, which means you'd lose out on a better rate. Also, if your loan doesn't close within a shorter rate lock period, you might lose your rate. Berry says that it's uncommon, because lenders can also offer a rate-lock extension. For a fee, of course.
While shopping for the best mortgage interest rates, remember to get any rate lock agreements in writing, and be sure that the rate lock agreement applies to the type of loan you'll get. Berry explains that if you switch from an FHA loan to a different loan, the lock might not apply.
Ask about rate lock fees and whether they're refundable at closing, and also ask about the possibility of a rate lock extension. Getting all of this information up front helps you shop for the best mortgage loan deal, not just a rate offer that sounds great long before you'll actually use it.
In the market to buy a home? Eppraisal can help. Learn more about interest rates and other home buyer information through our mortgage articles.