What’s a rate lock and when to lock? 

All mortgages have an interest rate attached to them.  Until you lock your loan, the interest rate you are being quoted is only a reflection of the interest rate at the time you are given the quote.  Since mortgage interest rates are constantly changing, sometimes even several times per day, you need to be very aware of your rate lock and when to lock.   

When you lock your interest rate, you are fixing the interest rate at a set percentage for a certain amount of time.  Rate locks can be as short as 5 days and as long as 90 days or more.  At some point during the loan process you must lock your rate.  Ask your loan officer for advice on a rate lock.  You want to make sure your rate lock lasts long enough that you are given enough time your complete your loan transaction. 

Timing the rate lock to ensure you are getting the best interest rate can be quite risky if you are holding off on the lock in hopes of better interest rates.  The mechanisms behind mortgage interest rate movement include the economy/economic news, the stock market, the Fed, mortgage backed securities, and even foreign markets that affect our economy.  Your loan officer does not have a crystal ball and therefore cannot predict with certain accuracy the results of interest rate movement.  The best advice is to lock your rate when you are pleased with it.  An 1/8^th of a percentage point movement in either direction usually won’t be a huge increase or decrease in your mortgage payment.   

You should also be sure that your loan officer actually locks your interest rate when you request it.  Some loan officers will “float” your rate hoping that rates will decrease below the original rate they quoted you.  Floating an interest rate just means your rate is not locked.  If the loan officer floats your rate and does not lock it, there is the potential that the loan officer can make more money off your loan if indeed interest rates decrease and the loan officer offers you the original quoted rate.  The larger the spread between a wholesale rate and what a loan officer offers you, the larger the yield spread premium to the loan officer.  Read more about yield spread premium (YSP) in the resources section.

Go to the BeatMyBroker.com homepage to see how you can get the best mortgage rates and read about current mortgage news.