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What Is a Mortgage Rate Lock?

Published October 11, 2022

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Mortgage Lending
Mortgage Refinancing
Article

As home loans move from approval through the processing phase towards a close, lenders may offer a mortgage rate lock which means that your interest rate won’t change between the offer and closing, as long as you close within the specified time frame and there are no changes to your application.As interest rates can change daily based on national prime rates and other factors, a rate lock ensures that your mortgage rate will not climb higher.When you lock your rate, you can also lock the cost of any discount points.  Discount points are an upfront fee that is calculated as a percentage of your loan amount in exchange for a lower interest rate for the life of your loan.This is sometimes referred to as “buying down the rate.” One point is equal to 1% of the requested loan amount. You may be able to lock in both the interest rate and discount points you choose at time of the mortgage application or during the process of your loan up to 10 days prior to closing.When to use a mortgage rate lock depends on how competitive you believe your rate to be.

When should you use a mortgage rate lock?

Typically, a lender will offer a borrower an interest rate lock at the time of mortgage application, but before many of the final underwriting verifications of credit, income, and final home appraisal have taken place.  Most lenders do not charge a separate fee for rate locks within a certain time frame as the cost of the lock is often baked into the rate you’re offered. Lenders may charge an additional fee for extending the length of the rate lock period.

If you feel that your locked rate is competitive given your level of borrowing, your ability to repay the loan, and your credit history, locking in a rate helps protect your homebuying power from potential rate fluctuations. The cost of any discount points you are using on a mortgage loan will also lock in during this period.

However, if your mortgage lender offers you a locked interest rate that doesn’t beat the interest rate offers you received when you shopped with competing lenders, you may want to consider earning approval and locks from other lenders before you lock in your rate. Note that not accepting a rate lock may delay the closing if not locked at least 10 days prior to the closing date.

How long do mortgage rate locks last?

While lenders may have different timelines to lock in interest rates, most rate lock windows will typically range from 15 to 90 days. This length of time usually ensures that the locked-in rate you earn after a loan application lasts until you sign your final closing documents.

To give busy borrowers the assurance of a locked-in rate with ample time to line up documentation and appraisal as the loan processes, some lenders like Laurel Road may also offer interest rate locks from 15 to 90 days.

If you’re interested in a rate lock, be sure to ask some essential questions first.

Questions to ask before choosing a rate lock

Before you lock in your interest rate, consider learning a bit more about your lender’s specific policies about rate locks:

  • Is there a rate lock fee? Is it waived if I do not close on the loan?
  • Under what conditions could I lose my locked-in rate to a higher interest rate?
  • What happens if processing and closing of the loan fall outside of the rate lock window?
  • Will changes to my loan application impact my locked interest rate?
  • Can a rate lock be extended if extenuating circumstances prevent a loan’s closing?

Factors that could change your mortgage rate

Interest rates for mortgages are derived based on criteria across four main factors:

  • The amount borrowed through the loan and available equity (if refinancing a mortgage)
  • The borrower’s financial health, including measures of credit and debt, income, and ability to repay

The amount you borrow or available equity

When you apply for a mortgage, the amount you borrow will stay the same until the loan is paid off, so interest rates will only be able to change if you choose to borrow less or more during the processing period (which may require a new application).

If you are refinancing your mortgage, you’ll likely make some payments to reduce your debt and increase your equity. However, the typical monthly payments made towards this debt will likely not impact your interest rate during the rate lock period.

Borrower’s financial health and credit

Similarly, most measures of income, debt, home value, and credit will likely remain similar – if not the same – throughout the loan process. Occasionally, if your credit score improves dramatically, if you pay off a lot of debt, or if you earn a raise to significantly increase your income, you might be able to reduce your interest rate during processing and even after a rate is locked in due to these updates.

In these cases, you’ll need to negotiate with your mortgage lender, noting your improvements across these financial elements.

Locking your rate for mortgages

In a rising rate environment, there may be even more reasons to consider a rate lock. Without a rate lock, you may be exposed to market uncertainties and potential increases by the Fed that could increase rates in the market.

To lock your rate in, you’ll need to first submit your mortgage application. While a preliminary interest rate will be provided at the point of approval, you may soon be offered a locked-in rate from some lenders.

Laurel Road offers locked-in rates ranging from 15 to 90 days for mortgage loans including physician mortgages. Our rate locks provide borrowers with the clarity of a competitive interest rate and the security of a rate that won’t fluctuate as your loan is processed, as well as letting you secure the cost of any points you add to your loan.

If you’re considering starting your homebuying journey, check your rate today and get pre-qualified in minutes with Laurel Road. Once you’ve found your home, close with peace of mind using Laurel Road’s rate lock.

 

In providing this information, neither Laurel Road or KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.

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