When to Secure Your Interest Rate

Interest rates are subject to daily fluctuations, and during more volatile periods, they can even change within a single business day. This means that the rate you were quoted in the morning may no longer be available in the afternoon. It’s important to note that the rate provided over the phone, online, or in person isn’t automatically guaranteed. For instance, if a rate of 6.00% was quoted in the morning, it doesn’t imply you can secure that rate at any time. Instead, you need to request a rate lock from your loan officer. Loan officers won’t initiate a rate lock on your behalf; it’s a specific request you must make. But when should you make this request?

Personally, I err on the side of caution when it comes to this issue. I recommend that if you’re comfortable with the quoted rate and you meet the qualifications, you should go ahead and lock it in as early as possible. Your loan officer will provide guidance on when and how to lock your rate, but as a general rule, your loan file should be complete. This means your credit report has been reviewed, your income and asset information has been submitted and reviewed, and so on. Why isn’t it possible to lock a rate over the phone when you’ve only submitted a loan application?

Lenders treat rate locks with the same seriousness as you do. When you lock in a rate, the lender essentially reserves that rate and allocates the corresponding mortgage funds from its credit line. If, for any reason, the loan doesn’t close, the lender then returns the reserved funds to its credit line. When lenders engage in such withdrawals too frequently, their investors may start imposing higher costs for their credit line usage, which increases expenses all around.

One thing to note about rate locks is that the longer the lock period, the more it will cost. If you wish to lock in your rate for 30 days, the cost will be slightly higher compared to a 10- or 15-day lock. Longer-term locks incur higher costs.

By ‘floating’ your rate, you leave yourself unprotected. It typically takes significant changes for rates to move downward, but rates can be unpredictable and subject to sudden spikes. What if you lock your rate and then rates decrease further? Most loan programs allow for a re-lock at a lower rate under specific conditions, but this often involves a fee. You may be granted a one-time float down, but it won’t secure the absolute lowest available rate – it may come close, but not the very lowest.