Mortgage rates are unpredictable, but a rate lock can keep rates low and give homebuyers peace of mind.
What is a mortgage rate lock?
Interest rates rise and fall, meaning a borrower’s rate may be higher at closing than it was when they first applied. A mortgage interest rate lock helps combat this.
A mortgage rate lock is an agreement between a borrower and their lender that allows the borrower to lock in a rate. Borrowers can monitor rates, locking one in that they can comfortably afford whenever they’re ready. This ensures they won’t end up with a higher rate at closing.
How long does a rate lock last?
A rate lock is typically 30 – 60 days. Once expired, the borrower can accept the current rate or extend their rate lock period. Borrowers can also ask their lender for an extension. If you foresee delays in the purchase process, mention a potential rate lock extension to your buyer as some lenders charge a fee for extending the agreement.
To help buyers feel secure, we at Rocket Mortgage® offer RateShield®. Traditionally, borrowers can’t lock in interest rates before signing a purchase agreement, but RateShield® allows buyers to lock in a rate for 90 days. If rates fall while house hunting, borrowers can lower their rate one time. If rates rise, the borrower gets to keep the rate they’ve already locked in.
How much does rate lock cost?
Lenders usually charge a fee between 0.25% – 0.5% of the loan amount to lock in a rate. But it’s vital that borrowers understand their loan terms; sometimes a rate lock is included.
When to lock in a mortgage rate
If a borrower has received an affordable interest rate, it’s usually wise to lock it in. If your client is privy to monitoring rates, they may want to lock in on a Monday, as rates tend to fluctuate midweek.
The pros and cons of a mortgage rate lock
Pros
A mortgage rate lock can:
- Protect borrowers from rising rates
- Include options that allow borrowers to lock in a lower rate if rates drop
- Provide peace of mind in an intense real estate market
- Be altered with a refinance later
Cons
A mortgage rate lock may:
- Lock a borrower out of falling rates if a float-down option is not included
- Come with initial or extension fees
Rocket Mortgage® does not have any fees associated with our initial rate lock.
The bottom line
A mortgage rate lock can offer buyers the extra confidence to start making offers. Make sure your client understands the benefits available to them, like rate lock extensions or float-down options.
Learn more about Rocket Mortgage’s RateShield® on our Rocket Pro℠ Insight Learning Center.
