Locking In (your interest rate): The financial market is not always stable, and the par (standard) interest rate offered by your lender may differ from one day (or hour) to the next. After talking with your loan officer and deciding upon an interest rate for your new mortgage, you may be given the option to "lock in" at the agreed-upon interest rate for a certain period of time (ie. sometimes 30, 45, 60, or 90 days). As long as your mortgage closes within the specified period of time, your final interest rate will be the same as the agreed-upon figure. The countdown begins the same day that you decide on an interest rate—perhaps when you sign the initial application or maybe even halfway into the loan process. If your mortgage does not close within the specified period of time, then the lock expires and you may have to re-lock at a higher interest rate if the financial market has gotten worse.1 Some lenders charge a fee to lock in your interest rate (which may be refundable if the loan does not close). When should you lock in? This really depends on the situation. Nobody is truly able to predict the financial market, but certain economic indicators may show its general direction. If people believe inflation is on the rise, then interest rates will generally increase (and vice versa). Discuss the situation with your loan officer, but remember that they are probably not experts in market analysis. Any advise given to you should be weighed against your specific situation. For example, what if underwriter approval is dependent upon you receiving no higher than a 9% interest rate? If the market gets worse, then you may be facing a 9¼% rate—just enough so that you don’t qualify! In this scenario, you may have to pay discount points to lower your rate to 9%. But what if you don’t have enough money in the bank? You may have to lock in for an Adjustable Rate Mortgage instead of a fixed rate. You may even run out of alternatives, and the entire transaction could be ruined. If you are unsure about the situation, it’s always safest to lock in as soon as possible. Generally, the "guaranteed" interest rate is actually higher when you lock for 60 days as opposed to a lesser period such as 45, 30 or 15 days. By guaranteeing a higher-than-normal interest rate (perhaps 9% instead of 8.875%), the lender is covering themselves in case the market takes a turn for the worse. People who believe the market will stay the same or possibly improve might wait until their loan is about to close before locking in.2 This way, the borrower can request a 15 or 30 day lock and obtain a lower rate (or pay less discount points) in order to save money. Even a small rate improvement can save thousands of dollars over the life of your loan, or even a slight decrease in the discount points paid at closing can save hundreds of dollars right at closing. Note: Some lenders offer the same rate and points for all their lock periods, so be sure to discuss this with your loan officer. Important: Playing the market is not an exact science. Two investors might interpret the same economic data and come up with opposing viewpoints. For those who decide to wait before locking, make sure you consider the worst-case scenario. Important: If you do not lock your rate at the time you sign the Good Faith Estimate (GFE), the lender is not required to guarantee the discount points shown on the GFE. Those points are just an estimate, and the economy may change enough to warrant an increase or decrease from the original estimate. Discuss this with your lender. 1 If your lock has expired and the financial market has improved, many lenders DO NOT allow you to re-lock at the lower interest rate. That is, you compare the locked-in rate with the new market rate and take the worst one. Some lenders offer a special lock program where you pay an up-front fee in return for the privilege to re-lock at the improved market rate. Whether or not the market improves, this fee is generally not refundable. 2 Referred to as "floating." Essentially, if you do not lock in your interest rate when you sign the loan application, then you are considered to be floating until such time as you lock.