What is Rate Locking?
A lot of times when you are buying or refinancing a home you hear the mortgage lingo and sometimes either your loan officer doesn’t explain it, or you forget to ask. A term that you will most likely hear is “lock-in or rate lock”. This sounds fairly self-explanatory but besides the actual definition there is a lot more that goes into the term “rate-lock”.
First, let’s go over the actual meaning of rate locking. Rate locking is when your loan officer will lock an interest rate on your mortgage loan. This 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.
Why do they do this?
Mortgage interest rates can change daily, sometimes hourly. For that reason, a loan officer will lock in your rate so that you get the best rate possible from the time you make an offer and the time you close. This allows you to have typically 30-60 days to make your offer and close on your house. This may seem like a good thing, and you might be telling yourself since my rate is locked in, I can use my credit cards again, or I can apply for another loan. This is not the case. Your rate can still change even though it has been locked.
What type of things can change my rate after it’s locked?
There are multiple things that can change your rate. Here are a few to think about:
- Changing your loan type or down payment amount.
- The appraisal on your home came in lower or higher than expected.
- Your credit score changes. Missed payments, credit card use, and credit pulls can all impact this score.
Questions you should ask
Here are some questions you can ask to avoid surprises:
- “What does it mean if I lock my rate today?”
- “What rate lock time frame does this Loan Estimate provide?”
- “Is a shorter or longer rate lock available, and at what cost?
- “What if my closing is delayed and the rate lock expires?”
- “If I lock my rate, are there any conditions under which my rate could still change?”
- “If I lock my rate, and interest rates go down, what happens?”