What It Means to Lock in a Rate

Buying a house is a big deal. It is not a decision that you should jump into lightly. That being said, when you decide that you are ready to buy a home, it is important that you have a real estate professional by your side. He or she will be able to help you find the perfect home at a price that you can afford.

When you start looking, you need to start meeting with mortgage professionals also. You’ll want to get preapproved for a loan, so that you are prepared when you find the right home. This is even more important in a seller’s market (like now) when good homes are bought almost as soon as they hit the market. When you start talking to a mortgage lender, they may ask you if you want to lock in a rate. It’s important to fully understand what this does, and why it might benefit you in the future.

What does it mean to lock in a rate?

When you lock in your rate, you will know exactly what your interest rate will be when you close on a house. Typically, you would lock in your rate when you put the offer on the house, and it won’t change within the thirty to sixty days that it takes to close on the home.

Unfortunately, the interest rates on homes can change on a daily basis (if not hourly), making it hard to know what you are going to be fully paying for your home. If you don’t lock in your rate, you will end up paying whatever the rate is when you close, which can make a world of difference sometimes.

Why would you want to do this?

• Mortgage rates are subject to change constantly. If the rates are going up, they could go up exponentially by the time that you close on the house. A change in mortgage interest could make the house too expensive for you. Even a quarter of a point may increase your monthly mortgage by a hundred dollars, let alone the change in a whole point.
• Many prefer to lock in a rate because they know how unpredictable the market is. They don’t want to take a chance because they found a home that they like and a mortgage that works for their budget.

Why wouldn’t you want to lock in a rate?

• The most common reason why people won’t lock in their mortgage rate is timing. If you are unable to close on your house in that thirty to sixty days (or whatever is agreed upon), you might need to extend your rate lock. This can be expensive to do.
• Others prefer not to lock their rate because they see how the market is, and they think that the mortgage interest rate will be less in the month or two that it takes to make it to settlement. Though this is a gamble, many decide to take the chance.
• Locking in your mortgage interest can cost money, money that could easily be used toward home inspections and other necessary fees that come along with buying a home. You might not be comfortable spending any more money than you have to.

Buying a home can be very exciting. However, the thought of paying for it can be overwhelming. This is why you need an experienced mortgage lender by your side. A First Savings loan officer can talk to you about pre-approval and the possibility of locking in a rate. Depending on the market, you may or may not want to take a chance.