When Can You Lock Your Rate?

While it is impossible to know which way interest rates will go in the future, one thing is certain – interest rates are lower now than they have been in recent years. Because of the recent rate drop, many people are wondering “do I lock in a low rate now or wait until later when rates might be lower”? Whether you start the process now or wait until later, one thing to remember – if you aren’t prepared to lock in your rate ahead of time, you might miss out.

The Application Process

Most lenders won’t lock your loan unless you have completed a loan application and have at least a pre-approval that you will qualify for the loan requested.  The reason for this is that when you lock your loan, the lender “locks” your loan with their investors and if too many people lock and don’t complete the loan process, it costs them money.

The loan application can be taken over the phone or in person and it usually takes between 30 minutes and 1 hour.  You will need to sign a stack of initial disclosures as well as have copies of your drivers license, social security card and other financial information depending on what type of loan you are requesting.

Some lenders charge an application fee (usually less than $500 if they charge one at all), so be sure to ask about an application fee up front.  Just because you have completed a loan application doesn’t mean that you have to go through with the loan – it means that you have applied for a loan.

After Application = Lock

Once your application has been completed and reviewed by your loan officer, you can lock your rate at any time. Normal lock periods are 15, 30 or 45 days.  Once your rate is locked, your loan can move through the process of processing, underwriting and closing – which recently seems to be taking a couple of weeks on average.

Most lenders will require that your rate is locked prior to going to underwriting – and in a period of uncertainty as to which way rates are heading, it is probably wise to lock as soon as possible in the process.

Locked = Locked

After your rate is locked, whether interest rates go up or down, your rate is “locked”.  If rates go up, you will be happy because you have a lower rate.  If rates go down – you may wonder “why did I lock in the first place?” A select few lenders may offer something called a “floatdown” where if rates drop, they will allow you to get the better rate – but very few lenders offer this so be sure to ask your loan officer early in the process if they offer a “floatdown” option.

Mortgage rates go up and down every day – sometimes multiple times each day. When buying a home or thinking about refinancing, it is important to focus on your primary objective – to get the best possible rate at the time of locking — and don’t spend energy asking “what if” after you have locked. Once you have been approved and have a rate locked – you are well on your way to moving into your new home (if you are purchasing a home) or getting a lower monthly payment (if you are refinancing)!

Arizona Mortgage Rates for January 20, 2009