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What is a Rate Lock?

The iServe Blog


What is a Rate Lock?

Oct 10
9:01
AM
Category | The iServe Blog

Ever seen an amazing sale, headed to the store and realized that you just missed it by one day? If you’re just shopping for a new pair of shoes or a new game, you might have a mini-meltdown in Target and then move on. It is disappointing but doesn't impact your life in any big way.

That same scenario, though, can have a huge impact on your life if it happens with your mortgage loan when you are buying a home. If you base your offer, budget and plans on a mortgage loan at a particular interest rate and then that rate goes up as you work through the loan process, you’ll be out a lot of money over the life of your new loan.

A rate lock can help.

A rate lock is designed to protect you from increases in interest rates, while you are in the process of securing a mortgage or buying a home. The lock guarantees the rate offered by a lender for a specific amount of time. If interest rates go up after the lock is in place, then you can still may get the rate you for which you locked in (provided the loan closes and funds during the lock-in period). There is a catch though – when you lock in rates and interest rates go down, you may not be able to get in on the bargain and obtain the lower interest rate.

Rate Lock Timing

Rate locks are made for a specific amount of time, usually for 10-60 days and are offered after you’ve chosen a property and, if purchasing, are in contract with a seller. Once you have the contract in place, you can lock in your rate with your mortgage lender. Rate locks can expire. In some cases, the lender can extend the lock or honor it, in others you’ll be stuck with the current market rate once the lock expires.

Mortgage Rate Lock Costs

Some lenders charge fees related to locking in a rate lock. Further, if you are looking for a longer lock-in period a mortgage lender may only offer a higher interest rate option. As such, a 10-day lock could secure a lower interest rate than a 60-day lock, resulting in less money paid over the life of the loan.  You should speak with your mortgage lender regarding this.

Is a rate lock right for your mortgage? If you are worried that rates will go up before you can buy your home, it could be. The best way to tell if this is a good choice is to speak to a qualified mortgage lender, who can help you determine if this option is right for you. Contact us for help with your mortgage questions or to start the process; our skilled team can walk you through the process and ensure you have everything you need to become a homeowner.

 

 

Programs, terms and guidelines subject to change without notice. Not all applicants may qualify. All loans subject to underwriter and investor approval. Arizona Mortgage Banking License BK-0920658; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License  413-0646; Regulated by the Division of Real Estate Colorado Supervised Lender #988552; Georgia Residential Mortgage Licensee License #19613; Licensed by the New Jersey Department of Banking and Insurance License # 512567; Licensed Mortgage Banker—Licensed Mortgage Banker-New York State Department of Financial Services License # B501014; Licensed by the Virginia State Corporation Commission; Virginia Lender License #MC-3220, NMLS #2914 (www.nmlsconsumeraccess.org). iServe Residential Lending, LLC, NMLS #2914-15015 Avenue of Science Suite 250, San Diego, CA 92128 Phone: (858) 486-4169