It doesn’t matter if you are buying or refinancing a home, one of the most important parts of the process is your rate lock strategy.
Yes, you need to have a plan and in some cases, nerves of steel too. When you lock your rate, you are effectively reserving your money at a certain cost and for a specified amount of time.
Therefore, your mortgage professional should regularly consult with you on market conditions and communicate with you often on how changes in conditions could impact your rate lock.
Typically, a rate can be locked for up to 15-, 30- or 45-day periods. Although there are longer terms available as well.
In fact, you can even extend your rate lock timeframe after its initial expiration date. However, the longer your rate lock or extension period, the more expensive it could be depending on market conditions at that time.
For instance, your lender may or may not charge you a percentage or “points” on your loan amount as a cost for your rate lock time commitment.
In addition to paying for the amount of time your rate is locked, you might opt to buy down your rate to a lower rate than what’s generally marketed by your lender.
Sometimes you can also wrap this together with your rate lock timeframe. If this isn’t confusing enough, your lender probably has what’s called a “float down” or renegotiation option available if market conditions improve during the time of your original rate lock period.
Consequently, whether you are chasing a “trophy rate” or just trying to obtain the smartest rate for your scenario, you need to be patient and educate yourself along the way.
If you are buying a home, it’s a good idea to check with your lender on the availability of specialty lock programs.
As an example, there’s something called a “lock and buy” program, which is designed for buyers who are looking to find a home quickly and make an offer. This allows you to lock your rate while you shop for your home.
There’s a “lock and build” program, which is for buyers who are trying to buy a home that is or will be in construction.
Under this program, you can lock your rate while your home is being built. Lastly, there’s the “lock and list” program, which you can use to lock your rate while you sell your existing home and buy your new home.
In the end, locking rates can be, and usually is, super complex.
Your lender must have access to a wide variety of financing sources, tools to help monitor market conditions and the ability to structure your loan file in multiple ways all in an effort to create different rate locking options for you.
Once your rate is locked, you need to protect it and manage that valuable amount of time by working with your lender to successfully close your transaction.
Otherwise, you and your lender could likely incur “broken” rate lock charges.