In this post we explore the pros and cons of locking in an interest rate on your mortgage. Generally speaking, mortgage interest rates are dynamic and unpredictable. They can fluctuate many times between when you file a loan application and when your loan closes. If you want to avoid uncertainty and preserve the rate in your mortgage loan offer, you can get a mortgage interest rate lock. Interest rate locks can offer peace of mind to borrowers, but it's important to know that there can be consequences and that interest rate locks are not foolproof. In fact, you could miss out on a lower interest rate after you lock and your loan might not close before the lock expires.
What does it mean to lock in your interest rate?
A mortgage rate lock can reduce financial uncertainty in the home purchase process because it protects you from major interest rate increases. Locks are usually in place for at least a month to give the lender enough time to process the loan. 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.
Positives of a Rate Lock
Now, if you like the rate you have, you can keep it unless your loan changes or the lock expires prior to closing. One of the positives of locking in a rate is that you don’t have to worry about changes to monthly payments because your interest rate is set. Also, you can avoid a last-minute financial scramble before your closing if you need to provide a higher down payment or make a points purchase because of a higher interest rate.
Negatives of a Rate Lock
Now, one potential negative of a rate lock is that you could miss out on a lower interest rate, which could save you thousands of dollars over the life of the loan. If the rate lock expires, you might be charged hundreds of dollars to extend it or miss out on the rate altogether.
So, should you do it?
Well, in this brief article, we’ve given you a lot to think about. It really depends on your exact situation. Give us a call at (602) 535-2171 and we’re happy to talk through your options. It's super valuable to lean on your mortgage lender to build a strategy and a game-plan around the market conditions, your close date, and other factors like the amount of money down, your DTI, etc. Thankfully, we’re here to help!
