Mortgage interest rates are volatile. If you shop around and find a competitive rate, you can lock it in so you won’t have to worry about rates rising before you close on a house. Your interest rate may change, however, under certain circumstances.
How a Rate Lock Works
A rate lock will protect you from fluctuations in interest rates and give you peace of mind as you get ready to buy a house. If you lock in your interest rate, the rate you’re charged won’t go up, even if interest rates are higher when you close on your new home.
Some lenders offer a float-down option. If interest rates fall after you lock in your rate and you have a float-down option, you’ll be eligible for a lower rate.
A rate lock applies for a specific period of time, usually at least 30 days. Before you lock in your interest rate, find out approximately how long it will take to close on the house and request a longer rate-lock period to give yourself a buffer in case you hit a snag somewhere along the way. If you lock in your interest rate, you might have to pay a separate fee, or the cost might be factored into the interest rate.
Why Your Interest Rate Might Go Up After You Get a Rate Lock
After you lock in your interest rate, it won’t rise in response to changes in the market, but it might change if something related to your application changes. For instance, you might get preapproved for a mortgage and lock in an interest rate, then lose your job, take a pay cut, open a new line of credit or take out a car loan. A change in your employment status, income, debt-to-income ratio or credit score can prompt a lender to void your rate lock.
A change in information related to the house or the loan can also affect your interest rate. For instance, if the home you want to buy doesn’t appraise for an amount that’s in line with what you asked to borrow, the lender might not honor the interest rate that you locked in. Your rate might also go up if you decide to take out a mortgage for a particular term, then you change your mind and decide to get a loan with a longer or shorter term, or you decide to take out a different type of mortgage.
Locking in Your Interest Rate Can Protect Your Purchasing Power
Mortgage interest rates can rise and fall multiple times in a single day. That can be nerve-racking for people who are interested in buying a home. A rate lock can protect you from that volatility and give you peace of mind, as long as the information that you provided in your application doesn’t change before you close on a house.
