What Is a Rate Lock, and What Are My Options?
Like the name implies, a rate lock means your lender is committing to lock a certain interest rate for a specific period of time – usually 15, 30, 45 or 60 days. Rates constantly fluctuate, so a rate lock protects you from that fluctuation.
Suppose you get a rate lock at 4 percent for 30 days. If rates start to climb and reach 4.25 percent, you still get the 4 percent rate as long as you close within 30 days. However, if the rate drops to 3.75 percent, you don’t automatically switch to the lower rate. But that doesn’t mean you can’t.
Options for Lowering Your Interest Rate Before Closing
If rates drop drastically enough after your rate is locked in your lender may be able to renegotiate your rate and float it down to a lower rate. Keep in mind that a float down is an option, not a right or a guarantee.
You also have the option to buy down your rate. For example, if you’re offered a rate of 4 percent, you can buy it down to 3.75 percent. Depending on the market, the cost could be a between a half a point and a full point. A “point” is 1 percent of your mortgage amount.
The Value of a Lender Who Prioritizes Your Best Interests
When rates are as low as they are now, it isn’t always worth it to pay points for a lower rate. Greenway Mortgage will always explain the options if you’re thinking about buying down your interest rate.
For example, suppose you’re borrowing $300,000 at 4 percent, and the cost to buy the rate down to 3.75 percent is three-quarters of a point. This would cost you $2,250 out of pocket at closing and would lower your payment by $40 per month. Whether this is worth it is a personal decision.
This is another example of our consultative approach to mortgage lending. Similarly, we don’t depend on the borrower to tell us when to lock their rate. We closely monitor the market and, based on your specific situation, recommend the best time to lock a rate.
Your Responsibilities as a Borrower
The lender isn’t the only party making a commitment when a rate is locked. It also means you, the borrower, are committing to closing and funding your loan within that time period.
If the closing of your loan is delayed because of issues with the seller, home inspection, title company, attorney or anything else that is not the fault of the lender, you may be subject a lock extension fee or a re-lock fee. If you feel that the delay is not your fault, we recommend consulting with your attorney about recovering the cost of a lock extension or re-lock from the responsible party.
To be clear, we won’t sign off on a 30-day rate lock if we think it will take more than 30 days to get to closing. However, it’s important to realize that both the lender and the borrower must live by the terms of the rate lock.
Have questions about rate locks? Thinking about buying or refinancing? Contact Greenway Mortgage and let us provide you with the information you need to make the best possible decisions.
