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The interest rate shown in your Good Faith Estimate can expire and is subject to change - right up until you sign the loan papers - unless you lockin that rate. A rate lock is just what it sounds like: a set-in-stone guarantee that your interest rate won't change between the time you lock in that rate and lock's expiration date, usually 30 days.
When you lock in your rate is partly up to the lender and partly up to you. Some lenders won't let you lock in a rate until after you get your loan approved; others let you do it earlier, usually after they've appraised the house. And some automatically lock in the rate when they approve a loan.
Ask your mortgage broker or loan officer when you can lock in the rate. After that, the time you lock in the rate is up to you. Watch rates using asite like Bankrate.com (go to www.bankrate.com and then click Mortgage). If rates seem to be going down, you might wait to lock in the rate. When you see a rate that looks good - in other words, a rate at which you'd be comfortable paying the monthly principal and interest on your loan - call your mortgage broker to lock it in and be assured that that's the rate you'll pay. Rate locks work both ways: Your loan's interest rate won't increase if rates go up, but it won't decrease if it goes down, either.
Don't gamble on your loan's interest rate. Even when rates are decreasing, something can cause them to spike suddenly. If you're happy with a rate, lock it in.
Many lenders don't charge you to lock in your rate for 30 days (some loans come with 45- or even 60-day locks). If it looks like you might need more time than that to get to closing, you can buy a longer rate lock. How much that costs depends on the lender and on how long you want the rate lock to last - you may pay up to a point (due at closing) for the lock to last another 60 days. You may also have the option to pay for the lock over time, by locking in at a slightly higher interest rate.
Your rate-lock confirmation letter has four parts:
- The type of loan (30-year fixed-rate, 5/1 ARM, and so on)
- The interest rate
- The points you're paying for the loan, including origination and discount points
- The rate-lock period, including its expiration date
If any of that information is missing, contact your mortgage broker or loan officer immediately. You need all of it to make sure that your loan is correct at the closing.
If something delays your closing and your rate lock will expire before you can close, you may be able to buy a rate-lock extension. But for some lenders, an expiration date is an expiration date, and they won't honor the rate lock after it expires. Know your lender's policy on extensions before you lock in a rate.
You're not stuck with a particular lender if you lock in a rate. If rates go down, you can walk away from your loan application and go to a different lender, although you'll give up any fees you've already paid. If you work with a mortgage broker, who has access to loans offered by many lenders, the broker may be able to switch to a different lender to get you locked in at a better rate.
