What Is A “Rate Lock” When Getting A Mortgage?

Interest rates can fluctuate multiple times a day. Because they do this, it sometimes makes sense to lock in the rate. If you do not lock the rate then you are choosing to “float the rate.”  lf you are looking for a mortgage when the rates seem to be dropping, floating the rate may not be a bad strategy. You would want to take advantage of this favorable movement in the market. It usually does not cost to float the rate, but you take a risk in possibly ending up with a higher rate.

When you lock a rate in, it guarantees that the lender will be able to honor that interest rate. This is set for a specific time. Rate locks are usually good for 30 to 60 days. It is possible to buy more time on the rate lock but it will usually cost more. It is really up to you to ask the lender for advice if you choose pay for a rate lock or to float the rate.

There is always the possibility in this market that the rate lock expires during escrow. There is a lot of competition for a home and it can take longer to negotiate a contract. There can also be problems during the escrow period. If you have a rate lock it is very important that all your paperwork is in to the lender and you have an approval for the purchase before you go to escrow because it can cost money to extend a rate lock.

Some points to remember about rate locks

  1. A rate lock keeps your rate from moving up for a period of time.
  2. Rates change constantly, a rate lock helps protect you from rate fluctuations so you do not have to take a higher market rate.
  3. You can lock your rate in for 30 to 120 days. The cost will vary depending on the lender.
  4. Some lenders will offer a rate lock for free. Some lenders will only charge if you have to extend the rate lock period.

The most important thing is to talk to a lender and understand the loan process. This will guarantee you can negotiate a contract with confidence and knowledge.

Call me at (562) 544-0449 if you have questions about buying or selling a home. I have been a real estate agent since 1991 and have seen many changes in the real estate business. The industry is changing again and you need to have someone who knows and understands how to negotiate the change.

Mary Ann Edwards – Re/Max College Park – (562) 544-0449 – Lic #01103542

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