When is the timing right to lock in your mortgage rate?

With a rate lock, lenders are obligated (with a few exceptions) to offer a home loan at an agreed-upon rate regardless of whether mortgage rates have changed between the time of the loan approval and the closing date.

Consumers looking for a mortgage who find a great mortgage rate typically choose to lock it in for a specified period of time. Todd Dal Porto, a national sales executive with Bank of America Home Loans, says most lenders offer a loan lock period of 30, 45, 60 or 90 days.

If you’re shopping for a home loan, when is the best time to lock your mortgage rate?

“The time to lock in a loan depends completely on individual circumstances, so borrowers should work closely with their loan officer to make the decision,” Dal Porto says.

When to lock?

The earliest point at which a borrower can lock in a loan is after the initial loan approval. However, many borrowers wait until they have found a home to purchase.

“The vast majority of homebuyers wait until they have a ratified contract to lock in their loan,” says Brent Mendelson, a senior loan officer with Monarch Mortgage in Rockville, Md.

Borrowers typically wait because they don’t know how many days it will take to find a home and have an offer accepted. They worry that by locking in too early, they may miss the opporunity for a better rate before they complete a purchase or get stuck paying extra to extend the lock once it expires.

In addition, a longer rate lock is more costly. For example, a borrower who chooses a 30-day lock on a loan may pay a 4.875 percent rate and zero points, while a 60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly higher rate with a half-point, Dal Porto says.

Brad Blackwell, executive vice president and national retail sales manager of Wells Fargo Home Mortgage, generally urges clients to wait for an accepted offer before locking a loan.

“If you don’t have a ratified contract, you don’t want to lock in your rate and have the clock ticking while you start searching for a home,” says Blackwell.

However, Mendelson emphasizes that each borrower’s individual circumstances dictate the best time to lock.

“There’s no perfect time to lock a loan, but a lender or mortgage broker can check with the loan processor to get a feel for how long it will take to have the loan go through underwriting,” Mendelson says.

Dal Porto agrees that individual borrower circumstances influence the best time to lock.

For example, Dal Porto says borrowers concerned that even a small increase in the interest rate could cause a budget problem should “lean toward locking in the rate as early as possible, especially in a market with increasing mortgage rates.”

Choosing when to lock the loan for refinance is easier. The settlement date for a refinance loan is driven only by the lender, while a purchase loan typically has a settlement date that depends on the seller as well as the buyer.

Refinancing right now typically takes a little longer than a purchase mortgage, so we recommend a lock of 60 or even 90 days,” Dal Porto says. “We have a lot of refinancing applications and the loan process is more complex. Now, every loan requires full documentation.”

Dal Porto says the industry average for a purchase loan is 45 days from application to closing, while a refinance averages 60 to 90 days.

Working with borrowers

Although the term “rate lock” sounds unyielding, many lenders are willing to be flexible with borrowers when circumstances change.

For example, many lenders will negotiate with the borrower if rates fall to prevent the borrower from opting to go to another lender. Blackwell says lenders sometimes charge a small fee to float down the rate.

What if the lock expires before closing? Lenders may offer an extension on the lock.

Mendelson says lender charges for a lock extension vary. Normally, the fee is 0.25 of a point for every 15-day extension. Another option is to relock at the current mortgage rate.

Dal Porto says many lenders will negotiate the fee for extending the lock, particularly if the settlement is delayed due to a distressed property needing additional repairs.

Borrowers should also remember that a rate lock is not guaranteed in all circumstances. Borrowers can lose a rate lock if their circumstances change — such as a shift in their credit score or in their debt-to-income ratio — before settlement.

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