I encourage customers to lock-in a mortgage rate because it takes the guessing out of a loan rate and protects them from large market adjustments that could affect interest rates.
Before I lock in a rate for a customer, we have an in-depth conversation about what it means. For example, while we don’t charge a fee to lock in a rate, I explain that with a rate lock, the bank has to commit to funding the loan. We do that by committing the loan amount to investors. Since there’s a cost to the commitment, there is a cost to the customer for backing out of a locked rate.
INB can lock a rate for up to 90 days after the initial loan approval. The closing date determines the lock period. The lock period includes one week for the work done behind the scenes after the mortgage closes. Once the lock expires, you can extend it up to 30 days, but that comes with a daily cost. The charge varies depending if rates are moving up or down compared to the rate lock amount.
Locking in a rate is simple; it just takes a phone call after we approve the initial application. I always follow up the call with an email so the customer has the specifics. Then once I have the rate locked, I communicate this information via text, phone or email . . . whichever way is best for the customer.
Do I think rate locks are a good thing? Most of the time, yes. I’ve had customers whose loans might not have been approved if it weren’t for locking in a rate. If they had waited and loan rates had increased, their debt ratio might have increased the monthly payment to an amount that wouldn’t work with their budget. I typically recommend a rate lock.
Can Lock Hurt?
There can be a downside to a rate lock. You could be locked out of a lower interest rate if rates fall. While we can’t predict what will happen with rates in the future, we know rates are low right now.
You can choose to pay “discount points” at closing to get a lower rate if rates have dropped. You’ll pay this one-time fee upfront so you can have lower rates in the future. INB mortgage lenders look at each loan situation to determine whether this is in the customer’s best interest. But, generally, discount points are less attractive to buyers who don’t plan to stay in their home very long.
Can the Rate Change After a Lock?
If a rate is locked, it can still change if you make any changes in your application—including your loan amount, credit score, or verified income. For example:
- You change the loan type. (Example, from a fixed to adjustable rate.)
- You change your down payment.
- Your credit score changes. This can happen if you miss a credit card payment or make a large purchase on credit.
- The appraised value of your home changes.
As I noted earlier, every customer’s situation is different, and a rate lock is just one of the parts of the home loan process that I’d be happy to help you with. Call me at 217-747-8701.