When to Lock In Your Mortgage Rate

Buying a new home is generally coupled with getting a mortgage, and necesarily, "locking in" a mortgage rate. Thank you to Guaranteed Rate for providing much of this great information on how a mortgage rate is derived and how you can make an informed decision when it comes to your own home buying process. Here's what you need to know.

Where does a mortgage rate come from?

The purchase and sale of mortgage loans in the primary and secondary market are, in large, how mortgage rates are derived. You may recognize the largest purchasers of mortgage loans: Fannie Mae and Freddie Mac.

The actual purchasing process of a loan doesn't involve tangible cash. Instead, Fannie and Freddie offer what is known as liquid mortgage backed securities (MBS). The sale of these drives mortgage rates.

How can I access lower rates?

While timing is essential to getting a good rate, the number of days you choose to lock can also affect your rate. You can choose to lock your rate for a certain number of days (usually 10, 25, 40, 55, 60, 70, 85), and the fewer days that you choose, the lower your cost will be, which I s commonly reflected in your rate.

► Why? The longer you lock in a rate, the more it costs both the lender and you to hold the rate while the market continues to shift.

When can I lock in?

The timing of when you can lock in your rate depends on whether or not you are purchasing a home or refinancing a home.

Locking on a Purchase Loan

When purchasing a home, you are bound by the closing date on your contract. When you lock in your rate, it must be valid through the day of closing.

Purchases must be locked before the underwriter can clear your loan to close.

Locking on a Refinance Loan

When refinancing, 4 days of your lock period will be used for the 3-day right of recision period. This applies only to refinance transactions of your primary residency, and allows you to cancel the loan up to 3 days after you close (the loan will fund on day 4).

Refinances must be locked before submitting your loan file to underwriting for approval.

In sum?

If your rate is available for the number of days you need, lock in. This will negate the risk of losing the rate.

If you choose to "float" your rate (wait to see if the rates come down), know that while rates typically do not vary drastically, waiting can make the difference between an ideal rate and a worse-case rate. Waiting is a gamble which will often not work in your favor.

We recommend you contact one of our recommended mortgage lenders to find out more information on your specific scenario.

Real Group Real Estate

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