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From day to day or sometimes even from hour to hour, interest rates are constantly fluctuating depending on the current market trends and federal funds rate. That’s why a lot of people are wondering – how long can you lock a mortgage rate when getting a loan?
Locking a mortgage rate usually lasts about 15-60 days, but the exact time frame depends on the agreement with your lender, the loan type you acquired, your location, and the terms of the loan. You can do this at any point from the moment you get the loan approval to 5 days before closing.
Mortgage interest is essentially how brokers make money. But, when you’re dealing with circumstances where even a minor change can greatly impact the amount you need to repay on your home loan, you need something to protect you from costly rises in interest rates.
That protection is the possibility to lock the mortgage rate, which basically freezes your interest rate in place. So, you will get to keep your lower rate even if interest rates begin to rise.
Unfortunately, the interest rate can’t stay frozen forever. Most rate locks usually last 15-60 days, but the exact period varies depending on your loan type, the place you live, the loan terms, as well as the mortgage company you work with. If the lock expires before the loan closes, you might get the option to extend it, but you will need to pay an additional fee to do that.
You can choose to protect your mortgage rate at any point from the moment you get the initial loan approval to 5 days before the final closing. If you’re thinking about locking your rate right away, you need to do research and figure out how the rates have been fluctuating. If they’ve been rising, the best is to lock your mortgage rate as soon as it’s approved.
Locking the mortgage rate is a smart choice if you’re comfortable with the rate you got during the approval. On the other hand, floating your rate (not locking it in) can also be beneficial, but you need to be aware that even the slightest increase can add a lot to your monthly payments over time.
For example, let’s see how different interest rates impact the final cost if we assume you’re getting a conventional 30-year mortgage for a loan of $400,000:
Interest Rate (%) | Monthly Payment | Total Interest | Total Cost |
3.0% | $1,686 | $207,109 | $607,109 |
3.5% | $1,796 | $246,624 | $646,624 |
4.0% | $1,909 | $287,478 | $687,478 |
4.5% | $2,026 | $329,626 | $729,626 |
5.0% | $2,147 | $373,023 | $773,023 |
So, locking your rate can save you money in the long run, but it’s also important to check with a mortgage packager if a lender requires additional payments for this option. It’s not that common, but some companies do it, and you pay this fee upfront or as a part of your closing costs.
However, if you plan on extending the rate lock or re-locking it after the original lock period has expired, that will definitely be an additional expense. This fee might be paid in mortgage points, which increases the interest rate slightly.
While locking in your mortgage rate will provide you with the best rate possible if there’s an increase in the market, there’s one downside. If the interest rates decrease, it won’t affect your rate because it’s locked. But, you can get a float-down option, which allows you to take advantage of this decrease even during the lock period.
Market predictions are telling us that mortgage interest rates will continue to rise in 2023, so a mortgage lock would be a good idea if you plan on applying for a mortgage this year.
To take advantage of optimal rates, it’s important to know how to lock your mortgage rate. Here’s how to do it:
Here are some of the main aspects that dictate the interest rate increase or decrease:
To make sure you are enjoying the benefits of a lower interest rate and annual percentage rate, it’s important to know when exactly to lock in your mortgage rate. There are many factors to consider, and some of them are personal, so there’s no one-size-fits-all solution to locking your rate. Hopefully, this article helped you in deciding the right time to lock in.