Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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MORTGAGE
Mortgage Rate Lock: When Do You Lock in Your Mortgage?
What you'll learn: What you need to know about choosing the right time for a mortgage rate lock.
EXPECTED READ TIME: 5 MINUTES
October 28, 2024
Buying a home is already an involved process, and trying to keep up with current mortgage interest rates on a day-to-day basis can be difficult (even for the experts). Given the impact your interest rate can have on your monthly payments and costs over the life of your mortgage, even a slight fluctuation can make a big difference. And the last thing you need to deal with is any last-minute rate changes. That is why many lenders offer borrowers the ability to lock in their rates.
The option and length of time to lock in your rate will depend on your lender, which is why it is important to know what a rate lock is and how it works before you choose who to work with.
Why do mortgage rates change?
First, it is good to understand why exactly mortgage rates fluctuate as they do. There are a number of factors that each have an effect on rates in the market, including:
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Mortgage and housing demand: As the demand for housing and mortgages increases, rates also tend to rise. However, the opposite is also true, so when there are fewer people interested in buying homes, rates will start to drop in order to reignite buyer interest.
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Changes to the economy: The economy tends to have an effect on most aspects of everyone’s life, and mortgage rates are no exception. When growth is high, interest rates tend to rise and vice versa. Though it does not set mortgage rates directly, the Federal Reserve does have an indirect influence when they raise or lower short-term interest rates.
What is a mortgage rate lock?
A mortgage rate lock, or mortgage rate protection, is an agreement that you can make with some lenders that guarantees your current rate will not change for a set amount of time. This “lock period” begins during a home loan’s initial approval and extends through to the loan closing, typically 30 to 60 days. The exact timeframe and possibilities for rate lock extensions will vary depending on the offer your lender provides.
Rate locks are meant to mitigate fluctuating rates, and can provide borrowers with the security that their low rate is protected against changes in the economy throughout the underwriting process.
How does a mortgage rate lock work?
It is important to note that a mortgage rate lock only protects your interest rate from rate changes casued by the economy. Changes to your finances, such as a large purchase or auto loan, can still affect the final interest rate your lender approves.
How long can you lock in your rate for?
You may find that most interest rate lock offers commonly range from 30 to 60 days, though some can extend up to 120 days. Some may also require rate lock fees or added costs if you need an extension. It all depends on what your lender offers, which is why it is important to shop around to find the right mortgage provider for you.
The type of mortgage you choose will also have an effect on your rate lock offer. For example, borrowers using construction loans will likely have access to longer lock periods (typically up to 12 months).
When can you lock your mortgage rate?
Rate locks are as straightforward as they sound, but it is important to get the timing of it right. The average length of time it takes to close on a conventional mortgage is approximately 45 days.
Once you have been approved for your mortgage loan, you can technically lock in the interest rate at any time up until five days before closing. Ideally, you will want to secure your rate when it is at its lowest with enough time to close on your home purchase. Do not worry too much about forecasting rates though, instead, focus on waiting until your rate works for your homebuying budget.
What is a rate lock extension?
In situations where a borrower is reaching the end of the lock period, but needs added time to close, some lenders offer the option to extend the rate lock. However, you will often have to pay an added fee. And the longer the extension is, the more you may have to pay.
Can you float down your interest rate?
Though not all lenders offer the option, some allow for a one-time “float down” on your interest rate. This means, if rates drop after you have locked one in, you have a chance to secure the lower rate. Rate lock float downs are more common for longer-term rate locks and most lenders only allow you to utilize this offer once during the lock period.
Why should you lock in your rate?
Interest adds up and when rates are increasing, having the option to secure it can be a great tool that saves you more money in the long run. That said, lock-in policies vary from lender to lender. It is important to take your time researching options so you can be sure you are working with a provider who has your best interest in mind and who has options that work best for you.
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Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.5 discount point, which equals 1.5 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.25 discount point, which equals 1.25 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.375 discount point, which equals 1.375 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.75 discount point, which equals 0.75 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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