April 15, 2009

LOCKING an Interest Rate, What Does That Mean?

Whether you’re financing a purchase or refinancing an existing loan, at some point in the process you and your mortgage professional will discuss “locking” the interest rate. Let’s talk about what that means and why we do it.

First of all, interest rates change every day. Locking a rate insures you get the rate you have been promised by your lender. If rates get worse, you’re protected. If rates improve, you keep the locked rate.

Generally we lock rates for 30 days but locks can be longer. How long you chose will depend on your needs. There is another piece of this process most people aren’t aware of. The lender funding your loan is likely selling it to an investor. Once a lock is made an investor is expecting delivery of that loan at that rate. So a lock is not only protection for you, it’s a promise from the lender to deliver that investment with those terms after they have completed the loan.