This is not as much of a concern when refinancing. Wait longer to close on a home, which could complicate your planned purchase of a home if the seller needs the transaction to close on an exact date.Pay more for processing the new application if the lender or mortgage broker has higher fees.Lose money you’ve already paid on an appraisal and other costs, such as a credit check you’ll end up paying for them again with a new loan application.There are some risks to this approach, however. If you locked in your rate early but interest rates are dropping, you might consider withdrawing the current mortgage application and starting a new one. What to Do if Interest Rates Fall After Your Rate Lock The lender might tell you these terms over the phone, but it’s better if you get them in writing, as well. Income on your application that can’t be verifiedĪn interest rate lock agreement will include the rate, the type of loan (such as a 30-year fixed-rate mortgage), the date the lock will expire and any points you might be paying toward the loan.Decrease in your credit score because you are delinquent on payments or took out an unrelated loan.Appraisal on your home that is different from the estimated value in your application.It’s possible the market rate for your loan could fall below your locked-in rate, but you won’t be able to take advantage of the lower rate unless you have a “float down” option.Įven if you have a lock in place, your interest rate could change because of factors related to your application such as: If the lender doesn’t process the loan before the rate lock expires, you’ll need to negotiate a lock extension or accept the current market rate. Locks are usually in place for at least a month, to give the lender enough time to process the loan.
“Without rate locks, borrowers would not know the final terms of their loan until the very end of the process.” How a Mortgage Rate Lock WorksĪ mortgage rate lock can reduce financial uncertainty in the home purchase process because it protects you from major interest rate increases. “Rate locks provide consumers certainty when it comes to the economic terms of their loan-most importantly, their monthly payment,” says Sebastian Hart, capital markets associate at online homeownership company Better. When you pay an up-front fee-or mortgage points-to a lender, you’re providing more money initially in order to get a lower interest rate.įor example, the cost for a $200,000 loan at a 30-year fixed rate could go up by more than $60 per month if the rate goes up from 5% to 5.5%, resulting in $22,000 more in interest over the loan term. If you don’t lock in your interest rate, rising interest rates could force you to make a higher down payment or pay points on your closing agreement. Consequences of Failing to Lock in Your Mortgage Rate There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan. Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. Make sure you get multiple mortgage loan offers and see which lender’s mortgage interest rate offer is the best one. If you don’t lock in right away, a mortgage lender might give you a period of time-such as 30 days-to request a lock, or you might be able to wait until just before closing on the home. If you lock in, the rate should be preserved as long as your loan closes before the lock expires. When you receive a mortgage loan offer, a lender will usually ask if you want to lock in the rate for a period of time or float the rate. Interest rate locks can offer peace of mind to borrowers, but they are not foolproof-you could miss out on a lower interest rate after you lock and your loan might not close before the lock expires. If you want to avoid uncertainty and preserve the rate in your mortgage loan offer, get a mortgage interest rate lock. Mortgage interest rates are dynamic and unpredictable, and can fluctuate many times between when you file a loan application and your closing.
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