Locking In Your Mortgage Rate Is Not as Easy as It Sounds

As defined in Investopedia, a mortgage rate lock is “an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate.” However, there’s a bit more to the story.

Offering you a rate lock costs your lender money; by committing funds to lend to you, the lender is unable to use them for anything else until your loan closes.

In other words, that money isn’t making money at that moment. Many lenders are hesitant to do this until they are reasonably sure that the mortgage you are applying for is going to go through.

Things that could happen to stop the home purchase process include many that are not of your making and are outside of your control. These may be unforeseen and may include significant issues with the property you want to buy.

So when should you be locking in a mortgage rate? The truth is that nobody, including your lender, knows what the rates are going to do day to day. As is the case with stockbrokers who watch the market to advise their clients on buying and selling, there is no crystal ball.

The answer is that at some point, probably close to the day of closing, you and your lender will need to make an educated guess. Then do it.

If you have questions, your mortgage professional can explain the lock-in process in greater detail.