Locking the mortgage rate is a very important factor when you are planning to purchase a mortgage. A mortgage rate is very fluctuating and it can significantly increase within a short time. You will be happy to know that it is possible to lock in a mortgage rate without a contract. There are lots of lenders available that provide features like “lock and shop” for mortgages. This type of feature allows the borrowers to lock the mortgage rate before signing a contract!
What is Mortgage Rate Lock?
A mortgage rate lock is a type of facility offered by various lenders that guarantee your mortgage rate won’t rise for a specified period of time or before closing the deal. One of the key advantages of a mortgage rate lock is, that it protects you from market fluctuations. For example, if you can lock your mortgage rate at 3.75 percent for 45 days and if the rate jumps to 4 percent within that time frame then you will still can get the mortgage at 3.75 percent. However, you should keep in mind that the lender might charge extra fees for mortgage rate lock or could include the cost in the loan. The lock period could be 30, 45, or 60 days and it usually extends from the initial loan approval. The lender can forfeit the rate lock if you provide the wrong information on your mortgage application.
How does Mortgage Rate Lock Work?
You must have a property address to be able to lock the mortgage rate. Moreover, if you get pre-approved then you won’t be able to lock the interest rate. Therefore, you have to find a house first, then make an offer and get the offer approved by the lender to be able to lock the mortgage rate. You should keep in mind that you have to pay a fee for a mortgage rate lock but a shorter lock period will cost you less. For example –
- 7-day lock: Free
- 15-day lock: 0.125% of the loan amount
- 30-day lock: 0.25% of the loan amount
- 45-day lock: 0.375% of the loan amount
- 60-day lock: 0.5% of the loan amount
So, you should not make your rate lock period longer as it will cost you more money.
When can a Mortgage Rate be Locked?
The answer to this question mostly depends on the lender. Some lenders might allow you to lock the interest rate once your mortgage is preapproved with a prospective home. On the other hand, some lenders might weight for the seller to accept the buyer’s offer. You have to choose the time very carefully. For example, if you lock too early then you might end up exceeding the rate lock expiration date.
So, if you have just started to look at properties, then it won’t be the best time to lock the interest rate. You have to find the best time by combining your interest rate, term, and costs. Usually, lenders won’t allow you to lock the rate for less than 30 days before you are ready to close the deal. Sometimes the lender offers the same arte for a 15- and 45-day period. But you should keep in mind that a lock period of more than 60 days will cost you more money.
What is a Float-down Lock?
A float-down lock is quite similar to a standard rate lock but with some differences. A float-down lock will allow you to take advantage of lower rates and you can use this feature before you close the loan. Two key advantages of float-down lock are, that you will have the assurance of your mortgage interest rate, as well as if the interest rate drops then you have the chance to change the rate! But, to enable this feature you have to pay some fees. So, consider your profit and expenses before enabling this feature. Therefore, check everything with your lender and find out all the details before putting the float-down policy into action.
What Will Happen if the Mortgage Rate Lock Expires before Closing?
Everything doesn’t go accordingly in real estate transactions, so it might happen that your mortgage rate lock period might over before the closing of the deal. If this happens then don’t be panic. You can extend the lock period either with fees or fees-free. Moreover, whether you should extend the lock period depends on quite a few things. If the lender is to blame for the late then you are not responsible to increase the lock period. Here, the lender will offer you an increase in the lock period for free. But if you are responsible for the delay to close the deal then you might have to pay extra fees to extend the lock period. Richard Greene, branch manager and loan officer at New Mexico Mortgage Company in Albuquerque says –
“Typically, an extension costs 0.375 percent of the loan amount, if the loan is $100,000, then a 15-day extension would cost $375 — and then you can extend again. If rates have gone up, it might be cheaper to pay the extension fee upfront.”
Is a Mortgage Rate Lock worth It?
The answer to this question depends on quite a few things. A mortgage rate lock doesn’t mean or ensure that you will get the best loan deal with the lowest interest rate. A rate lock is all about protecting your home buying power. When you start looking for the best mortgage lenders and rates, a mortgage lock rate will prevent your monthly mortgage payment from going up because of a sudden increase in the interest rate before the closing. For example, if you apply for a $300,000 mortgage for 30 years at 4%, then if the interest rate rises by just 0.25% before closing the deal then it will increase your monthly payment by up $44 a month. So, for the 630-year loan term, you have to pay $15840 extra! On the other hand, a lockdown at a 4% interest rate will cost you only $600. So, in you can execute the interest rate lock properly then it will save you lots of money.
FAQs about Can you Lock in a Mortgage Rate without a Contract
How long can you lock in a mortgage rate?
Depending on the approval of the lender, you can lock in a mortgage rate for 30 days, 60 days, or longer. You should select a lock period that is suitable for you to close the deal within that time frame. According to ICE Mortgage Technology, the average time range of closing a mortgage deal in 2021 was from 46 to 58 days. You can ask the lender about the expected time to close the deal and then pick the rate lock period.
Is a Rate Lock Free?
The exact answer to this question depends on the lender that you have picked. Depending on the lender and the rate lock duration, you might have to pay some fees. However, if the rate lock period is small like 3 – 7 days then you won’t have to pay any fees. Moreover, if you need to extend the rate lock period then you might have to pay an additional fee.
Can I change mortgage lenders after locking my rate?
Locking a mortgage rate doesn’t mean you have to close the deal with that specific lender. If you can get a better deal and offerings from another lender then you can change the lender without causing any problem to your current mortgage rate lock. However, if you change the lender then you have to do all the paper works from the beginning. So, you will need more time to close the deal.
Should I lock my mortgage rate today?
Whether you should lock your mortgage today depends on quite a few things. Below are some logical reasons to mortgage the rate today –
- If the rate is affordable compared to other lenders
- If the rate lock term is long enough for you to close the deal
- If there is a change for the interest rate to go up
- If you want certainty about the mortgage rate
Last Updated on August 7, 2022 by Ana S. Sutterfield
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.