Locking in an Interest Rate
The million dollar question every customer asks: “When should I lock in my interest rate?”. And the fact of the matter on this one is there is no crystal ball that can predict the absolute correct time to lock in. Because interest rates can change at a moments notice based on several unpredictable variables, there is no way for any loan officer, accountant, stock broker, financial planner, to predict with absolute certainty the best time to lock an interest rate in. They can all give you their opinion based on articles they’ve read or what they’ve observed in the financial markets, but there is no way for anyone to predict whether interest rates are going up or down with any kind of absolute certainty. But here are some tips that may help you decide when to lock an interest rate in.
First you have to ask yourself how long of a lock-in period you need. If you know that you’re going to need an extended lock-in, then it might benefit you to let your rate float until you get closer to your mortgage closing date. If you know that you are closing on your mortgage within say 30-60 days and you are happy with the current interest rates, then lock the rate in and forget about it. Whatever you do, don’t continue to follow rates after you’ve lock yours in, because the bank is not going to let you out of your lock-in agreement.
Most banks will let you lock in for 15, 30, 45, 60, and 90 days. Some banks offer extended lock-ins for 6 months and maybe longer. Those type of lock-ins are for new construction loans. The longer out you go the worse the pricing will be. Most lenders also require that you lock your interest rate a minimum of 5 days before closing. The most common lock-in period is for 45 to 60 days. That gives the lender enough time to process and underwrite your mortgage and get it ready for closing.
If you are doing a refinance to lower your interest rate, you have the luxury of floating until you get closer to your target monthly payment. Pick a number you are comfortable with and lock in when you hit that target number or get close to it. If you are purchasing a house and don’t want the stress that accompanies floating a rate, then you should lock your rate as soon as you have a fully executed sales contract.