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Locking Up a Good Rate: The 411 on Mortgage Rate Locks

June 23, 2014
From Loan Officer Shellie Sexton

From Loan Officer Shellie Sexton

Mortgages can be confusing for many borrowers. There is paperwork, terminology, and many different numbers. There are down payment amounts, loan-to-value numbers, interest rates, closing costs, etc. One area that many borrowers may not know about or understand is how rate locks work and how they may affect those numbers.

What is a rate lock?

A rate lock is when a lender commits to provide a mortgage at a specific interest rate for a set period of time, with the intention that the loan will close within that window of time. Rate locks of 30 to 60 days are common.

So when does a rate lock go into effect? This can be the tricky part. It does not go into effect during the initial phone call when a borrower is shopping lenders for the best mortgage terms.  The rate lock can happen anytime after the borrower provides the documentation needed. Some lenders will lock in a rate once the application is taken, but for others it may be at loan approval. Or a customer may want to wait to lock in case rates go lower closer to the closing date.

The key thing for your clients to know is that until they lock the interest rate, it can move up and down with the market, all the way up to the loan closing.

In truth, most borrowers don’t need to be overly concerned about small movements in interest rates each day. Even if rates increase by 1/8% or drop by the same, the effect on the monthly mortgage payment amount, especially over a 30-year term is small.

The best way to help your customers receive the best experience in the mortgage loan process is to work with a lender that is responsive, consultative, and willing to provide information that helps your borrowers feel comfortable.

For more information on rate locks or any other aspect of the mortgage process, feel free to contact your Loan Officer.

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