Mortgage Rate Lock: Basics, Float-Down and Timing
As those who have been in the mortgage market in the past are well aware, this market fluctuates significantly over months, weeks and even days. Changing rates as you negotiate and search for a home are something buyers definitely have to keep in mind, and one tool that’s sometimes offered by lenders to mitigate this, and utilized by buyers within this realm, is known as a mortgage rate lock.
At Primary Residential Mortgage, we’re happy to assist our clients with finding the very best possible mortgage rate given their situation, including many cases where we’ve offered mortgage rate locks to customers. What is a mortgage rate lock, what are the important terms and basics you should know here, and is obtaining a rate lock a good idea in your situation? This two-part blog series will go over several important areas.
Mortgage Rate Lock Basics
A mortgage rate lock, as the name suggests, refers to an offer from a mortgage lender to a buyer to prevent the interest rate from rising between the time of the loan application and the closing date. This interest rate can be locked in only for a specific period of time at the current market rate, protecting the borrower.
In some cases, lenders will charge a lock fee that the borrower has to pay if they do not end up locking in this interest rate. In other situations, the lender will just charge a slightly higher interest rate as an exchange for offering the lock.
Float-Down Provision
The rate lock is primarily to protect borrowers from rates going up, but what if rates actually go down during the period between application and closing? In these cases, the borrower may have the option to withdraw from the agreement.
In others, the borrower may have access to what’s known as a float-down provision. This allows them to lock in a new loan at the lower rate the market has dropped to during the waiting period. Just like with other parts of a rate lock, a float-down provision generally comes with a fee or some other kind of additional cost to the borrower.
Timing Considerations
A mortgage rate lock generally will last from 30 to 60 days, which is also the period most float-down provisions tend to be good for. This is enough time for the lender to process the loan application and complete all the details.
So when should you lock in your rate, if you’re going to do so? Ideally, the best time here is as soon as you’re pre-approved for your loan, as long as the interest rate at that time is acceptable to you. Predicting mortgage rates is basically impossible, so if you’ve found a rate you know works for you, lock it in now. However, be sure that the closing will be completed within the lock period so you aren’t charged any additional fees.
For more on mortgage rate locks, or to learn about any of our home loan services or mortgage rates, speak to the staff at Primary Residential Mortgage today.
*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.