What is a Mortgage Rate Lock?
A mortgage interest rate lock is a tool put in place to guarantee the selected rate that will be applied to your mortgage. If you do not lock your interest rate, it is subject to change. This could be detrimental to a homebuyer if rates go up before they close on their home loan. There is no solid answer to the question “when is the best time to lock a rate?” Trying to time the mortgage rate lock perfectly is next to impossible; the market is constantly changing. It is like selling a stock at the absolute peak of the market. The most important aspect of a rate lock is that you and your loan officer are confident that your loan will close within the term of your rate lock.
While there are no rigid rules that lenders are required to follow when it comes to rate locks, there are some guidelines. The loan must be reviewed by the lender, meet criteria for the rate given and the lock must be accepted and verified.
If the interest rate you were given requires a minimum credit score of 740, your lender will need a credit report along with other documentation to confirm that you qualify for the loan. Some lenders will lock your rate before they have verified this information. If it turns out that the information does not match what you have told them, they are not obligated to honor your mortgage rate lock.
Determining when to lock your mortgage rate can be a difficult task. You don’t want to lock your rate too soon and have rates go down; but you also don’t want to let your rate float and have rates shoot up. The safest bet is to lock early, assuming you are happy with the payment terms. If you wait and rates increase, you may no longer qualify for your mortgage and your entire home purchase may collapse. Make sure you are prepared: know your lenders mortgage lock requirements; get the proper documentation to your lender on a timely basis; and know ahead of time what mortgage programs and corresponding rates will work best for you.