Many times when working with buyers they ask me about when to lock an interest rate. While it’s difficult to predict (much like predicting when the housing market will peak or slide), here’s my advice.

With interest rates dropping into the 4 to 4.5% range this year, you can save a lot of money over the course of 30 years by locking in a great rate. This is sometimes hard to gauge, as interest rates can change two or three times in one day. Many buyers lock in at the time they submit their loan application, but others wait until only a few days till close of escrow. The length of the lock can vary from 7 to 60 days, and sometimes longer.  

Today, it is wise to lock your rate in for 45 days when you submit your loan package. With delays due to appraisal issues and lenders asking for additional information, it can take this long to close the loan.  

There are advantages and disadvantages to locking in a rate. If rates fall after locking, the lender probably won’t give you a better rate. However if rates rise, then the lender has to give you the lower locked rate as long as you close on time. Some lenders are offering a “float down.” This would come into play if interest rates were to drop between the lock date and the date your loan documents are drawn. The lender probably won’t allow you to go to the market rate, but something in-between. A float down is a one-time-only option.

As rates have an expiration date, it’s essential to provide as much financial documentation needed to qualify you for the mortgage as soon as possible, as it will speed up the process. Trust me, lenders are asking for much, much more financial information than they did several years ago. Ask your mortgage broker or bank exactly what the lender will require, like pay stubs and information supporting your down payment and cash reserves that may be in an IRA or 401k, because sometimes it takes a while to transfer these funds around. If you drag your feet producing additional documentation, it could jeopardize your loan and rate lock. Extensions in rate locks are sometimes granted, but don’t count on it. Try to get the rate lock in writing. Some lenders will do it and others only give verbal commitments, which are hard to enforce. 

Now is a great time to refinance not only because rates are low, but also because of fewer home sales and less competition to worry about in terms of getting the loan closed on time. Remember, one full point in interest will cost you up to $300,000 over the course of 30 years on a $1.0M home. Watch the rates, be prepared, and lock in to save money over the long haul. 

Posted by:  Rick Smith