Rate Lock Periods

What is a “rate lock period”? How can you be sure that your rate is low?

A rate lock or a rate commitment is a lender’s promise to hold a certain interest rate and a certain number of points for you over a specified period while your application is processed. This saves you the hassle of going through the whole application process and finding out later that the interest rate has gone up.

A rate lock period can vary in length, and longer ones usually cost more. A lender will agree to “hold” your interest rate and points for a longer period, say 60 days, but in exchange the rate and possibly points are higher than with a shorter rate lock period.

There are several other options available besides opting for a shorter rate lock period that will allow you to get a lower rate. A larger down payment will result in a lower interest rate because you are beginning the loan with an established amount of equity. It is possible to pay points to lower your rate over the life of the loan, but requires more upfront fees. For many home buyers, this is the best option.

Closing costs are fees paid by the lender, which in turn the lender charges you to cover the expenses of completing the loan. Many home buyers choose to pay closing costs when they finalize the loan, but some choose to finance their closing costs. Paying closing costs when the loan closes will reduce your interest rate.

Finally, the interest rate a lender is willing to offer depends on your credit score and your income-to-debt ratio. If you have good credit and your income far exceeds your debt obligations, you will qualify for a lower rate.