QandAs: Loans

What does it mean to lock in an interest rate?

Answer:
Due to unpredictable mortgage rates, the interest rate

quoted by a mortgage lender when an application was originally approved can change prior to closing. Some buyers can afford an interest rate increase. Alternatively, a small increase of ¼ percentage point could disqualify a borrower.

To avoid this headache, many borrowers opt to lock in a loan interest rate. In turn, a sudden rate increase doesn’t affect their ability to afford the home.

Loan locking is advantageous for borrowers and mortgage providers. Some homebuyers are not loyal to a specific lender. For this reason, these borrowers may work with several different loan companies, and then choose the lender offering the best rate on their loan. If obtaining loan quotes, comparative shopping is smart.

On the other hand, once a borrower completes a formal loan application and begins the home buying process with a certain lender, walking away from the deal will cost the lender time and money.

Mortgage providers recognize the importance of borrowers acquiring a good rate on their mortgage. To oblige borrowers, lenders present the option of loan locking. Locking benefits borrowers because they avoid paying more for their home loan. The mortgage business is competitive. Hence, loan locking helps lenders hold on to clients

Once a mortgage provider or lender agrees to lock an interest rate, the lock is not permanent. The typical lock period expires after 30 days. However, some loan programs will allow loan locks up to 180 days. If the lock period expires before closing date, borrowers may be given the opportunity to re-lock at the current rate.


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