Home mortgage rate locks, lock-in, or rate commitments
A mortgage rate lock-in, also known as a rate lock or rate commitment, is a lender's promise to hold a certain interest rate and a certain number of points for you, for a specified period of time. If the interest rates have generally been on the rise, and you are not comfortable risking paying a higher mortgage interest rate, a rate lock makes good sense. As with anything else, there is usually a nominal fee for locking a rate.
What is the length or duration of a rate lock?
Mortgage rate locks are usually found in 30, 45, or 60 day contracts. Some mortgage rate commitments can extend beyond 60 days, but the longer the rate lock, the steeper the fees for providing the rate lock.
How do I know if I should get a rate lock on my mortgage?
Knowing whether or not to get a rate lock on your home loan is more gut-feeling than real facts. Nobody really knows if the interest rate is going up next month, or down. It's basically playing the stock market.
Most people like to plan ahead. Knowing what your mortgage payment will be ahead of time is comforting. If you don't lock, you run the risk of paying higher interest rates, and higher mortgage payments, when it comes time to close.
On the flip side, if interest rate have been steady or trending downward, a rate lock may be unnecessary.
Rates locks may not always work in your best interest; depending on the loan institution and rate lock type. By the time you close on your mortgage, if the interest rate falls below the rate you locked in at, you may end up paying the higher interest rate that you lock in at.