What Is a Rate Lock Agreement?

A rate lock agreement is sent to prospective borrowers after they’ve confirmed with their lender that they wish to lock in a quoted interest rate on the mortgage for a certain period of time.

While not required as it’s perfectly allowable to let your interest rate float until closing, most home buyers prefer to lock in an interest rate to reduce the risk of having their payments go up if interest rates rise unexpectedly prior to closing.

Is there a rate lock fee?

No, there is typically no fee for prospective borrowers to lock in their mortgage interest rate anytime prior to closing. If your rate lock expires, there’s typically also no fee to get a new rate lock at the current market interest rate.

In fact, the only time most lenders will charge a rate lock fee is if rates go down after you’ve locked your rate, and you wish to re-lock at a lower rate. This is called re-pricing your loan and will typically come with a fee.

Please keep in mind the intention is not to harass your lender by locking your interest rate multiple times with the same lender.

What is a typical mortgage lock period? When should you rate lock? Rate lock fees, rate lock expiration, sample rate lock agreement & more.

The expectation is that you closely watch interest rates and get regular quotes from your mortgage broker or bank and lock in your interest rate only once.

Pro Tip: If it makes sense given often non-refundable appraisal fees, and you’re okay with having your credit run again, then one way to re-price your mortgage for free is to simply apply with a new lender. However, this assumes that you have enough time to get the loan approval process done before your closing date.

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What's the best day to lock in a mortgage rate?

There isn’t a best day or best day of the week to lock in a mortgage rate because rates are always changing based on prevailing interest rates, such as the 10 Year US Treasury Note which mortgage rates and a whole host of other interest rates are referenced off of.

While banks are tight-lipped about their exact formulas for pricing risk, including how much of a typical spread they’ll require over the risk-free rate (i.e. the 10 Year US Treasury Note), you can typically expect your quoted mortgage interest rates to go up and down according to what the risk-free rate does.

While banks say that mortgage rates can change several times a day, we see them changing more infrequently in practice.

From what we’ve seen from larger lenders, mortgage interest rates tend to have a lag, and sometimes will only change once or twice a week depending on the lender. Make sure to speak with your mortgage banker to get the inside scoop on how things work at their firm.

Pro Tip: The Federal Reserve tends to have an outsized impact on all financial markets, especially U.S. Treasuries. If you’re monitoring the market to time your rate lock, keep an eye on the economic calendar for when various meetings or press releases by various Federal Reserve officials happen.

What is a typical mortgage lock period?

A typical mortgage lock period is anywhere from 45 to 75 days, and is meant to cover the date of your expected closing; 2 months is a very common mortgage lock period that borrowers see.

If you are intent on locking your rate very early on in your loan application process, then you should speak with your mortgage banker to make sure that your rate lock period won’t expire until after your anticipated closing date.

Resist the temptation to lock your rate too early, especially if you don’t have a fully signed contract yet or haven’t cleared your contingencies yet.

The worst mistake a first time home buyer can make is to get too excited by the day’s low mortgage rates, and to lock their rate before the purchase contract is even fully signed.

Then if the contract falls through, the home buyer has now locked their rate, which may now well expire halfway through the process on their next deal at the most inopportune time.

Pro Tip: We recommend locking your mortgage interest rate only once you’re sure that you will go through with the deal, i.e. the contract is fully signed and you’ve cleared all contingencies such as the mortgage contingency.

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Rate lock expiration

All rate lock agreements will have an expiration date, typically 45-60 days but subject to variance depending on the lender.

Though your mortgage banker won’t typically offer to negotiate with you on the rate lock expiration date, they will usually only advise you to lock your interest rate if the expiration date will be past your anticipated closing date.

Typically, the only risk of a rate lock expiring is if something unexpected happens that delays your closing by a lot.

For example, if you purchase a property that you didn’t realize was actually a short sale, meaning that much more time is needed to get approval from the seller’s bank to sell for less than the loan principal.

Sample rate lock and expiration information

•This rate lock is scheduled to expire on October 1, 2021. A rate lock on a mortgage loan means that your interest rate won’t change between the offer, closing and disbursement of funds, as long as you close within the specified time-frame and there are no changes to your application.
•If your rate lock will expire prior to closing and disbursement of funds, a rate lock extension will be required to close your loan. We will extend your rate lock at no cost to you. Please be sure to respond promptly to all requests for information and documentation. This will ensure your loan application continues to move forward. Also, contact us right away if there are any changes to your application or if you wish to cancel or withdraw your application.
•You may be able to return to float by unlocking your rate if your closing date becomes unknown or uncertain and won’t occur on or before the rate lock expiration date. You can re-lock in 14 calendar days or less at your original rate and loan terms. If you re-lock after 14 calendar days, you’ll receive a new current market interest rate and rate lock expiration date. Contact your home mortgage consultant or private mortgage banker for help with this option.
•If the market improves prior to closing your loan, you can pay a fee and re-lock at a lower interest rate. This is called”repricing” your loan.
•Refer to your Understanding Interest Rate Lock Options document in your initial disclosure package for additional details on rate lock and rate lock expirations.

Can your rate lock agreement change?

Yes, it’s entirely possible that sometime during the underwriting process you will be sent a revised rate lock agreement due to any number of changes. We’ve included a section about possible changes in a sample rate lock agreement from a major U.S. bank:

The interest rate and terms displayed in the above table may change in some situations. These may include, but are not limited to:

-If your loan is an adjustable-rate mortgage (ARM). In this case, the rate listed is the initial interest rate.
-The type of loan you are applying for changes.
-Your down payment amount changes.
-Your requested loan amount increases or decreases after you initially locked your loan, which raises or lowers your loan-to-value (LTV) ratio.
-The appraised value of the property is different than the value used when you initially locked your loan.
-Your credit profile or qualifying income changes between the time you initially locked your loan and the loan closing.
-Some of your income information, such as bonus or overtime income, cannot be verified.

Refer to your Understanding Rate Lock Options document in your initial disclosure package for additional information on changes that may impact your interest rate.

This agreement is not a commitment to lend. We will need to verify your information and review your financial documentation before we make a decision on your application. A loan commitment also depends on property eligibility,including the appraisal and title report. Please refer to your Loan Estimate for information about other closing costs you may need to pay in connection with this proposed loan.

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Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.

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