Always lock your mortgage rate
A mortgage rate lock is essential to ensure you actually receive the interest rate you are quoted by a bank or mortgage broker. Often times you will you be presented with a rate quote, but it means very little until it’s actually secured by a bank or lender.
When you lock in an interest rate, you secure that rate and the terms associated, assuming your loan qualifies under said lender or bank terms. By locking a loan, you secure the interest rate along with the loan program, which carries certain terms. These include the mortgage index the program is tied to, the prepayment penalty if any, and the initial, periodic, and lifetime caps.
You must also choose a lock term, which can range from 7 days to 90 days, or even longer. The most common lock term is 15-30 days, which is the average time it takes for a loan to close. Either way, you will always have the opportunity to extend your rate lock at a small cost if the process gets delayed, which it often will!
Some borrowers may choose to lock in a rate at the initial time of the loan application, before the loan is even submitted. This is known as a pre-lock, and ensures the interest rate is set before the loan is even underwritten. It can be helpful if the debt-to-income ratio is close to the maximum, so if there are any interest rate fluctuations, the DTI won’t be exceeded. Others may lock a loan at the last minute, effectively gambling on the hopes of rates improving later in the loan process.
Either way it’s important to stay on top of your rate lock, and make sure you have the rate and terms in writing. Never assume a broker or bank has locked your interest rate. They may say your rate is this or that, or that it’s locked, but in actuality they may be floating your rate in the hopes of getting a better rebate. Or perhaps you’ve been misquoted, and they’re praying the rate will come down to what they originally quoted you.
I’ve seen that happen a million times. Brokers will go into panic mode if they failed to lock a rate, often after quoting their borrower a guaranteed rate. They’ll call the lender each day to see how rates have moved, and nervously push on day after day, waiting for the day rates fall to the level they were quoted. Sometimes brokers will settle for a lower rate with less rebate, but often they’ll simply tell the borrower the rate is higher for some reason, and the borrower will just have to accept it because they’ve spent so much time working on the loan and just want to get the deal done. Some brokers may even change the original terms they quoted you to get a lower rate. Such as raising the margin, adding a prepayment penalty, or changing indexes, caps, or even loan programs.
All that said, make sure you know exactly what you’re getting when it comes to the rate, term, and lock on your interest rate. Any mistakes here will directly lead to higher monthly costs, and headache if you fail to jump on a good rate early on. Sure you can gamble, but if you’re happy with an interest rate, might as well not take chances. And always get your lock confirmation in writing from the bank or broker before you move on with the deal!
