Mortgage lenders, like pretty much any type of industry, have their own internal lingo. It’s certainly one that is difficult to understand, as certain facets of mortgage lending have no standard English equivalent. Many times, loan officers can use some of their own internal lingo with a client, mistakenly assuming the client knows what the loan officer is actually saying. One of those terms is a mortgage rate lock, or sometimes simply a ‘lock.’ What are rate locks and how do they work?
A rate lock is when an interest rate is guaranteed on a particular loan for a specific period of time. Many times, consumers can think that if they see a rate online or get a quote from a loan officer that the rate pretty much stays there. That’s not the case. Mortgage rates can change daily, depending upon economic and market conditions. During extremely volatile times, they can even change during the course of a day. And until that rate is locked, the rate can change or ‘float.’
Lenders don’t lock rates for a borrower without the direct authorization from the borrower. While each individual lender may have slightly different rules on when and how a rate can be locked, there are a few general guidelines you can expect.
One is how long the rate lock can be made. And the longer the rate lock requested, the more expensive the rate will be. That makes sense because someone can’t expect a lender to lock in a rate for 60 days compared to a lock for 10 days, for instance. That means you should lock in your rate only long enough to cover your closing date. If your sales contract says the close date is say 30 days out, then you’ll want to lock in for 30+ days.
You also want a little cushion in case there are any delays but the way the mortgage market is set up these days, it’s doubtful delays will occur, but they can happen. Another appraisal might be needed or maybe the appraisal needs another comp listed. Maybe there appears to be an issue with the title and that needs to be cleared up as well. Title issues are referred to as a ‘cloud’ on the title.
One last thought- if you do lock in and rates go up, you’re protected. But what if they go down? Same. The rate lock is the lock. Some lenders do offer a ‘float down’ option if market rates fall far enough but lenders won’t do a float down without a fee. All of these parameters for your lender will be spelled out in a rate lock form you receive as part of your initial disclosure package. And as always, if you have any questions, speak directly with your loan officer.
