Locking In an Interest Rate

In a market where interest rates are low and stable, locking in the rate and terms for a month or so until you close seems like no big deal. However, if interest rates are unstable and going up, locking in the rate can easily mean the difference of a fourth or half percent in your payment. On a $150,000 loan, that can translate into a $50 to $70 a month increase.
Locking in an interest rate means that the lender agrees to lock in the interest rate for a set period of time, usually 30 to 60 days. If the market goes up, you’re locked in for the agreed on period. Likewise, if the market drops, you pay a higher rate, although some lenders may offer a float down option that lets you get a lower rate if the market drops.
Dos and don’ts of locking in a rate

1. Get the lock in writing.
2. Lock in the rate, points, and any other costs you can.
3. Lock in the rate on application rather than approval, especially if the market is volatile and going up.
4. When you shop for a loan, make sure you understand the lender’s policy on lock and if there’s a lock-in fee. Some lenders charge a fee, while others don’t.
5. Make sure the rate lock is long enough to close, but not so long that it costs you a fee.

Another option is not to lock in a rate and float with the market. Your interest rate is what the market is the day you close. In a market with falling rates, this is the best way to go. In an inflationary market of rising rates, locking in the rate becomes the better route.