As rates are slowly rising, buyers are asking,
“What Are Our Options Regarding Locking In and Protecting The Mortage Rates?”
Locking in rates is the action of setting your rate on the loan. This can be done with or without a contract but is more often than not done with a contract as locks are tied to specific property addresses. Here are some options and examples:
Most banks offer locks up to 1 year long. This is relevant for new construction typically. Keep in mind the longer the lock the higher the rate. So as you protect the lock the rates move up fast. A 30 day lock may be at 4.25% for example, whereas a 180 day lock might be at 4.75%. The idea being that if rates rise and go above 4.75% over the next 6 months you don’t mind since you are locked at 4.75% and that rate is secured for your new house. Some banks will even allow you to float down to current market once you’re within 30 days of closing. So in this example if we move forward 6 months and rates are still at 4.25% many times the bank will get you this rate or at a minimum something lower than 4.75%.
You don’t always have to tie a lock to a property address. Many banks offer a “lock and shop” program. This allows you to generically lock a rate without a property address. Length of lock affects the rates in the same manner as discussed above. The longer the lock the higher the rate. Once you have a contract the lock moves to that property. If you terminate for any reason than that lock is dead. Any new contract would have to be locked at current market rates whether up or down.
We always encourage clients to apply early in the process so they are pre-approved and any issues are resolved in advance. There is never any cost or obligation to get pre-approved. This also allows for a quick lock IF the client finds a house they are in love with.