Since interest rates change all the time and can't be predicted, the "good faith estimate" you get when looking for a mortgage may not be the interest rate you end up with at closing. Every day, interest rates can change, so borrowers can "lock in" the interest rate and points for a certain amount of time to make sure they stay the same.
Depending on your lender, there are many ways to lock in a loan, but the most important thing is to get it in writing. A verbal agreement won't do, and if the lender won't sign a written one, you should find another one. The commitment should say how many points are locked in, what the interest rate is, and how long it will last, which is usually 30 days.
Most of the time, you have to pay a small interest rate premium for this privilege. The lender will also want you to show that you are serious by paying an application fee, getting an appraisal, or giving a credit report.
When deciding whether or not to lock a loan, don't try to guess where interest rates are going. Locking the interest rate is a good idea if you wouldn't be able to get the loan or pay for it if it cost a little more. If you can handle some risk and are sure that the loan provider will give you the real market price, you might want to wait. When the lock period is short, the price is lower than when it is long.
When interest rates go up, it makes sense for the borrower to lock in the rate, but when rates go down, you still have a few options. Some locks have a feature called "float-down," which only protects the borrower if the rates go up. If they go down, the interest rate that is in place can be used. Most of the time, this costs a little more. For example, if a lender charges one point to lock the interest rate for 60 days, a 60-day float-down may cost 1.5 points.
Even if your lock doesn't have a "float-down" feature and the interest rate drops by 0.5 percent, you should still call your mortgage broker or lender and see if they can work with you. If you only have a week or so until closing, they may not budge because they know it would take too long to try to negotiate a new loan. If there are only a few weeks left until the closing, they may be willing to make a deal on the rate so they don't lose your business to another lender.
You can also walk away, but you will probably lose the application fee or money you have already paid. Slowing down the process on purpose so that the lock expires and you can get the lower rate won't always work. In that case, some contracts will take the higher of the two rates.
Locks can sometimes run out before the loan closes. If you think the lender is waiting for the lock to expire on purpose, you can file a complaint with the lender's governing body, but it will be hard to prove who is at fault. Make sure you send in all of your documents on time and are available for questions so you don't slow down the process. If the deadline is coming up, keep in touch with the broker or lender to try to get it to close.
