Ever heard of a rate lock? If you haven’t and are looking into purchasing a home, you’re going to want to familiarize yourself with it. Knowing what a mortgage interest rate lock is, and how to go about obtaining one, could be your best friend in kicking off your home purchase. Read on with this ABCs of Mortgage as we help you define mortgage interest rate lock.
What is a rate lock?
A lock, or commonly referred to as a rate lock, is a guarantee from your lender that they will give you a certain interest rate for your mortgage. The locks are typically good for 30-60 days but you can extend your locks for 120 days. And sometimes longer. You will have to pay a fee if you need to extend your lock, so make sure you give yourself time to close your loan before that lock expires.
Rate lock mortgage rules
So while it may be implicit, you are locking in that current rate when you do a rate lock. Meaning you’re also agreeing that rate is what you will go with. As Investopedia states, there is what’s called a “float-down provision” if rates drop during the lock period. Otherwise, if rates go down, you may have the option to do what is referred to as a “withdrawal.” Here, you’ll be able to withdraw from the current agreement. However, you’ll need to be mindful of this upfront and ensure that a withdrawal is an option with your lender.
Good to know. Now what?
If you’re starting to shop around for a mortgage and trying to find the best rate, chat with your local loan officer. They’ll be able to look through your finances to give you your options, as well help you navigate what rates in the market are looking like. And when you’re ready to proceed with a home purchase, they’ll be available to walk you through that process.