Have you ever wondered if you are protected if your mortgage rate is “locked” during underwriting and interest rates go up? What is a “rate-lock,” and how does it protect you? A locked interest rate with a mortgage lender allows borrowers to secure an interest rate for a specified amount of time and cost. It commits the lender to honor that rate at closing, as long as it occurs before the lock expiration date. It also commits the borrower to use that lender to close the loan. Borrowers can cancel a loan for several valid reasons. However, a borrower generally can’t, or shouldn’t, cancel a rate lock.
Mortgage lenders typically won’t let you lock in an interest rate until you have met specific prerequisites in the loan underwriting process. Usually, that means you’ve gone through an initial review of income, assets, and credit history. At a minimum, you need to submit a loan application with the lender and provide a subject property as collateral to lock in a rate.
Rate locks typically last between 10 days and 60 days. Some lenders might offer them for as few as seven days or as long as 90 days. It depends on the lender. Borrowers choose a lock-in period based on how long they anticipate the loan process taking. Rate locks are most logical when mortgage rates are rising. Borrowers also can choose to let their interest rate go up or down with market fluctuations if they are unsure of which loan program or lender to use, if rates are on the decline, and there is minimal fear of a higher interest rate at closing.
The lender or the borrower can cancel a loan agreement before closing. Lenders generally cancel because a borrower doesn’t meet loan requirements. Borrowers can cancel if loan terms or conditions change, and they no longer wish to continue with the purchase or refinance of the home. However, you can’t merely re-lock a rate or request a better interest rate if the lender’s pricing changes while you’re locked.
Changing lenders after a rate-lock is normally frowned upon by lenders because it wastes the lender’s time and resources. Also, switching lenders can be expensive because it often involves a new home appraisal and credit report. The borrower isn’t entitled to a refund of the appraisal or other fees that may have been pre-paid if they cancel a loan.
If you have questions about getting pre-approved for a loan or want to know if you should lock your rate, call a trusted mortgage professional at Primary Residential Mortgage. Our home loan specialists are some of the best in the business and are always happy to help you. So, what are you waiting for? Contact us today!