When it comes to the cost of living, do the older relatives in your family give the “when I was your age, a candy bar only cost a nickel.” – type speech? (Yeah, mine too.) Well, what if they had the power to freeze the cost of that candy bar? And what if the candy bar was actually something important, like the interest rate of a house?!
That’s a little taste of what you can expect with an extended mortgage rate lock.
What makes an extended mortgage rate lock such a treat?
Simply put, a mortgage rate lock will freeze your interest rate until loan closing. With an extended lock, it’s a guarantee by your lender that your mortgage interest rate will not change for a certain extended period of time. If you like the rate you were first quoted by your loan officer on your Loan Estimate, and the monthly payment suits your budget, consider locking it in. Why?
In a single day, mortgage interest rates will move up and down. During the time that’s needed to underwrite and process a mortgage loan, rates will fluctuate. This can either save you money or cost you thousands of dollars during the life of your loan. An extended mortgage rate lock is a way of preventing your interest rate from going higher before closing, which by the way, would also increase your closing costs.
When a client is coming up to their closing date, a standard rate lock at Homespire Mortgage is 30 days. Knowing that many buyers are facing fierce competition in our current market, like inventory shortages, we also offer an extended lock. This allows your rate to freeze anywhere from 165 days to 345 days if you’re opting for a conventional mortgage loan. This is a great peace-of-mind option if you want to purchase a new construction home, as some builds could take 6+ months before they’re complete and you close.
Sometimes opting for a mortgage rate lock is free; sometimes it will cost a fee, but you may have the option of rolling it into your loan. Though it varies, many times your lender will offer an extended rate lock after the approval of your initial loan application (before it’s submitted for underwriting). If one is not offered to you, ask for it!
If you do pay for a mortgage rate lock, you’re acting in the best interest of your homebuying power and giving yourself a layer of protection from ever-changing market fluctuations. Remember, once you’re locked in, your loan’s interest rate will not change. You’re protected from higher rates, but you won’t get a lower rate either, unless you have the option for a one-time “float down.”
How a float down works
Consider how interest rates move up and down. What happens if you’ve locked in a rate, but then you see you can get a lower one? You can take advantage of it if you have a “float-down” option. This is usually offered only once during your lock, so you can still get the best option available. A float down is often offered with new construction loans and long-term rate locks.
As you inch toward your closing date or completion of new home construction, it’s the best time to talk with your mortgage loan officer about the float down rate. You may be able to take advantage of one only after your builder sets a closing date, or if you’re within 60 days of closing and all your loan documents have been cleared by underwriting.
What spoils a rate lock?
There are a few things that will void a mortgage rate lock, including:
- Your loan application information changes (like your job or income status).
- There is a revision to the loan that will change its term or the type of product you originally opted for (such as conventional vs. FHA).
The bottom line
Locking in your mortgage rate is a great option when you’re offered a low rate before a closing date is set and your documents haven’t yet gone through underwriting. It’s an even better option if you (or the experts) predict that mortgage rates will rise before you think you can get to closing — an especially appealing offer if you’re waiting for a new construction home to be built. And, especially with a float down option, you get peace of mind knowing that you’ve protected yourself from changing mortgage market rates.
If you’re interested in an extended lock, a mortgage loan officer at Homespire can help – give them a call!
This is not an offer for a loan or any type of extension. Eligibility for a loan or extension of credit from Homespire Mortgage Corporation is subject to completion of a loan application, credit, income, and employment qualification, and meeting established underwriting criteria. Rates are subject to change without notice based on market conditions. See Loan Consultant for information on program income limits, buyer contribution, area median income, debt requirements, and other application details.