Borrowers this summer may have the opportunity to lock in a historically low mortgage rate, although low inventory and increased competition could make it challenging. This leaves some of our clients wondering how long and when it is best to lock in a mortgage rate.
Last month, the average 30-year loan came in at only 3.16%, according to mortgage purchaser Freddie Mac. Down more than 0.70% from a year ago but also a fourth record-low since the start of March.
With steadily falling rates, more borrowers start to delay mortgage rate locks. Mortgage experts agree that it could be a mistake to try to time the market.
Why Get a Mortgage Rate Lock
A mortgage rate lock (sometimes called rate protection) allows the borrower to “lock” an interest rate in place for a short time. Regardless of if they move up or down, you are still guaranteed the same rate. Rate locks tend to range from 30 to 60 days, depending on how long it takes to close in your area.
Often borrowers fear locking in too early or having to pay to extend their rate lock. Despite these worries, experts say rate locks are a smart idea. When the numbers make sense, it’s better to seize the opportunity to lock it in and refinance later on.
When to Lock In Your Mortgage Rate
While typically rate locks range from 30 to 60 days, there may be some factors to consider when choosing how long the lock lasts. For example, there are historically low rates right now, so your lender may be backlogged with tons of applications. Better to get the most extended length of time possible.
What else could extend your loan application process?
- Banking account statements
- Proof of income
- Income tax returns
- Photo ID
Delays in the process or your responses could cause the lock to expire before the home loan closes. At this point, lenders may ask you to pay for a rate lock extension or split the cost. In some rare cases, the lender might be at fault and pay for the entirety of the rate lock extension.
What Is a Mortgage Rate ‘Float Down’?
Once you’ve locked your mortgage rate, you may notice the market starts to dip during your loan processing. When you have a “float down” you can change a lower rate if the loan rate drops during the application process.
Ask your loan officer about this option before you lock-in, better to know what applies to you and any potential costs in the future. Each lender has its own float down policy. Usually, the float down will trigger when there is a significant drop between the lock-in date and the closing date.
A float down might be the best option if you have a lot of time until the loan closes and the application process doesn’t tie you up.
Should You lock your Mortgage Rate?
Rates are expected to say quite low for the next couple months if not years, waiting around for a lower one is not necessarily worth the risk. While it’s true that a percent change can impact your payment each year by hundreds of dollars, there won’t be such a dramatic change for the rest of 2020. With loan officers clearing out application backlogs during this time, it’s reasonable to assume you’ll close quickly without the need for an extended lock.
Our loan officers are here to help you take advantage of these great interest rates and lock in a fantastic mortgage. Get approved for your loan or refinance today! Click here