Understanding Rate Locks - To Lock or Not To Lock...

A critical part of the financing process is not only selecting and qualifying for your interest rate and program but locking it in!

When trying to understand the rate lock process there are four components to consider: Loan Program Interest Rate Length of Lock Closing Costs

What is a rate lock? A rate lock is a lender's promise to hold a certain interest rate for you for a specified period of time while your loan application is processed.  How does the loan program affect my rate lock? The rate quoted to you by your sales associate is determined by evaluating what type of program also referred to as product you qualify for. This interest rate is what the lock references, to change the loan program (i.e. full documentation to stated documentation or changing from a fixed to an adjustable rate mortgage) requires that you re-qualify under the new payment as well as clarify with your sales associate any changes in the closing costs. How does "locking in" my interest rate early in the loan process help me? The advantage to locking in a rate is that you do not have to worry about rate increases while your application is being processed.  The disadvantage is that a rate lock will prevent you from getting a better rate if they decrease. What is the standard length of a rate lock? Rate lock periods vary from lender to lender. Standard rate lock periods are 10, 15, 30 and 45 days. In some circumstances, such as in the case of a new construction loan it is possible to lock months in advance (but typically costs money to do so and is not often taken advantage of). How do rate locks affect closing costs? When an interest rate is quoted to you and a Good Faith Estimate is provided, your mortgage advisor is providing you the approximate closing costs of the loan. Changes to product/program and/or interest rate change the pricing of loan (disclosed in the 800 section as Yield Spread Premium). Typically, your closing costs are a combination of lender, title and broker fees as well as the yield spread premium or YSP or rebate recevied outside of closing and paid by the lender. Click on either of the underlined information to get more information!