Determining the Right Rate Lock Period

A rate lock is a promise to hold an interest rate and discount points for you for a specified period of time while your loan application is underwritten. Locking in your rate guarantees the rate as long as your loan closes and funds before the rate lock expires, preventing you from going through your whole process and finding out the interest rate has gone up.

A rate lock period can vary in length, and longer ones usually cost more. Typical rate lock time frames are 15, 30, 45, and 60 days.  Most investors will only allow a 15 day rate lock if the loan is already approved.  A lender will agree to “hold” your interest rate and discount for a longer period, say 60 days, but they’ll want a free item from your first garage sale, and pick of the litter if your dog ever has puppies, actually the rate and maybe discount (cost) is higher than with a shorter rate lock period.

There are three things you can do to get a lower interest rate:

1. A larger down payment will result in a lower interest rate, because you’ll have a lower Loan to Value.
2. You can pay discount points to lower your rate over the life of the loan, but that means you pay more up front. For many people, this makes sense and is a good deal.
3. Increase your credit score.

With a purchase you will want to review the purchase contract to help determine the right lock length based on the estimate closing date on the purchase agreement.

The most important thing for you to do is to work with a competent and qualified mortgage broker.

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Related posts from Indiana's USDA Home Loan Expert:

1. Understanding Rate Locks
2. The Good Faith Guarantee – What You Need to Know as a Borrower and a Realtor
3. Boost Your Credit Score to Get the Best Rate
4. Regulation Z Proposed Rule Would Mean More Cash to Close
5. Rates and APR: What Do They Tell You