Should You Lock Interest Rate With A Mortgage Lender?

Most lenders will agree to lock the rate and other terms that they quote you for a 30 day period. For a nominal fee or slight interest-rate increase lenders will typically, to hold the rates for 45 to 60 day period. The obvious benefit is that this commitment of rate lock as it’s often called provides you with peace of mind and guards you against interest rate inflation in the next few days that you take to decide and make up your mind.

What you’re doing is that you’re paying the mortgage lender a certain amount and transferring the risk of something happening in the market that could increase the cost of the loan. Locking a rate on the mortgage is analogous to buying insurance. You pay a premium to transfer the risk of something bad happening onto the lender, which in this case is increase in the interest rate in the days between the quote and the processing of the home loan.

The cost of purchasing a 60-day rate lock is in the range of 1/8 to 1/4 of additional points. On a $200,000 mortgage this could work up to $250-$500. So the question is this paying extra worth it?

If you want peace of mind and are getting an actual good interest rate, it makes sense to block it just in case it happens to increase in future. Compared it to a situation where you have paid for rate lock and the rate increases by .5%. Over a 30-year mortgage for $200,000 an increase of .5% means that you would be paying approximately $24,000 more. This does not seem a lot compared to the initial $250 or $500 does it?

No one can really predict what happens to the interest rate in the next month or two. Rate lock is simply buying peace of mind when you know that what you’re getting now is a good deal. Be sure to get the lender’s written commitment to the rate lock. Verbal assurances should be considered completely worthless.

Whenever you are getting quotes from a lender for a fixed-rate mortgage, you should jot down information on a piece of paper so you can make comparisons easily.