When should I lock in a rate?

When should I lock in a rate?
Sammamish Mortgage
Post Date: Updated:

Wondering what to do about fluctuating interest rates on home mortgage loans? You can lock your rate to relieve the uncertainty. Knowing when to lock your rate can be critical. Here’s what you need to know about timing your rate lock.

Locking Your Rate Freezes the Interest Rate

Once you have an offer accepted and are under contract on a new home it’s time to move quickly and start thinking about locking your rate. When interest rates are low, you can effectively freeze them and prevent them from going up (for you, at least) while you finalize your home purchase and get through closing.But when should you take this step?

When You Can Lock Your Rate

You can lock your rate as soon as you have a property specified and a closing date finalized. Some lenders may offer options to lock in a rate while you shop for homes but these offers usually come with higher than market rates and fees so you’re paying a premium. Once you are under contract on a property it is advisable to lock in a rate as soon as possible to protect yourself from big unexpected rate spikes.

There are occasionally times where locking right away doesn’t make sense. These include a closing date that is beyond 60 days, potential issues with the property or a rate market that is giving clear indications that rates are likely to decline in the near future. An experienced Loan Officer should be able to advise whether locking right away or waiting is the right choice based on the details of your specific situation.

Lock While Interest Rates Are Low

In the current low rate environment, floating a rate after you are under contract on a home is a risky move. The risk of rates moving up unexpectedly is higher when rates are hovering near record low levels. Timing the interest rate market is no different than trying to time stock prices. It is difficult and there is potential risk if things go the wrong way. In the vast majority of situations, taking the same bet and locking a rate is the best course of action.

You are always better off being locked in and having the rates move lower than floating and having the rates move higher. If rates move lower there are options such as renegotiating the rate or refinancing in the future; however, if you’re floating, and rates spike higher, the only options you have is to lock in a higher rate and payment or hope and pray that rates drop back down – neither of which options are ideal.

Lock When You Have a Clear Path Forward

Your locked rate has an expiration date, and if your closing gets delayed you can end up losing your locked rate or having to pay to get your lock extended. Make sure the closing date is set prior to locking. If the closing date is still being negotiated and could be pushed back significantly due to repairs or other issues it may be advisable to wait to lock the rate when the timeline for the transaction becomes more clear.

The Right Time to Lock Rates

Mortgage rates fluctuate daily and are heavily influenced by economic data. Make sure you are aware of any economic releases that may be on the horizon which can have an impact on mortgage rates.An experienced Loan Officer should have a pulse on the rate market and have paid resources they look at that give them insight on what rates are expected to do in the coming days and weeks.

It’s important to know that any advice or information you get is speculative, as no one can predict with certainty what rates will do day to day, week to week, or month to month. Often the biggest rate moves occur when everyone, including professional traders and big investment firms, expect rates to go one way but instead they go the exact opposite of everyone’s predictions.

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