How Low Can You Go? Locking In Your Interest Rate

Not only do interest rates fluctuate from week to week and day to day, but they can change throughout a single day. Getting the best rate can be tricky, but you can minimize the hit-or-miss aspect of it by locking in your rate with your mortgage broker or lender.

Here’s what you need to know about locking in your mortgage rate:

For how long and for how much? Your goal with locking in a mortgage rate is to have the lock-in extend through your date of closing. Locking in a rate for 30 days is probably the most common length of time, but you can request to lock in a rate for 45, 60, 90 or even 120 days. However, the longer you lock in for, the higher the fee will be. Generally, you’ll probably have to pay 1/4 to 1/2 a point more to extend your rate lock by 30 days, although those fees vary by lender.

Get the basics from your lender. Here are several basic questions you should ask your mortgage broker or lender before you lock in a rate: • How long can I lock in my rate for? • How firm will my date of closing be? • What are the total fees associated with the lock-in? • What happens if the agreement is broken for some reason? • What happens if the time period expires? When you’re ready to lock in your rate, make sure you get a written rate-lock agreement from your lender and read it thoroughly. Also, keep in mind that each lender has different policies and options when it comes to locking in a rate.

Know what a float-down is. With a float-down agreement, you can lock in at a lower interest rate if the rates go down, but you won’t be locked in to a higher rate—above the original agreed-upon rate—if rates go up. For example, if you lock in at 5.25 percent and the interest rates then falls to 5.1 percent, you’ll be able to get the lower rate. If the rates goes up to 5.5 percent, however, you’ll still be locked in at 5.25 percent. Float-downs do have higher fees, though, and not every lender offers this option.

There are risks to locking in, but... Sure, interest rates could go down after you lock in your rate, but in looking at the rates over the past year, rates are very low right now. The chances of interest rates falling dramatically overnight—and the chances that your broker or lender doesn’t see it coming—are very slim. One thing that you should consider before you lock in a rate, however, is if the fees associated with locking in will cost you more in the long run. Talk to your lender about how much the fees will cost you versus the savings of a lower interest rate.

In the end, locking in your mortgage rate can not only save you money, but it can also provide you with much-needed peace of mind. ∆