One of the most important financial considerations of buying a new home is
the interest rate paid on the mortgage. Over time, a higher interest rate can
add thousands of dollars to the true cost of buying the home. When interest
rates are low or steady buyers have greater confidence that they will get a
favorable rate when they go to secure the loan, but in our current
environment of rising interest rates, many lenders are suggesting a rate
lock at the time of pre-approval.
What is a Mortgage Rate Lock?
A rate lock freezes the interest rate on a mortgage for a period of time
before the close of the loan. Typically lasting for 30-60 days, the lender
guarantees the rate will not change during this period for a fee that is paid
when you agree to the loan terms.
A mortgage lock protects the borrower from rising interest rates while the
loan is processed and approved.
When should you lock in a Mortgage Rate?
Lenders will offer to lock in the rate at the time of loan approval. With
escrow periods of 30-60 days, the lock assures the buyer that their rate will
not increase during the time it takes to complete the loan process.
In a period of rising interest rates, as we see today, locking the rate may be
a smart idea. The borrower will pay a higher fee for the lock, as the lender
is also taking a risk, but it could be worth thousands of saved dollars over
the life of the loan. Even a small increase in the interest rate can have a
huge financial impact.