Mortgage Rate Locks
The Henssler Financial Group Position Paper

To begin, a rate lock should not be confused with a loan commitment. A loan commitment is the lender's promise to loan you a specified amount sometime in the future. A rate lock is a contract in addition to the loan stating that the lender will hold a certain interest rate for a specified period of time, usually about 30 days. The downfall is, if rates fall during that time, you will have to pay additional costs to take advantage of the lower rate. Also, if closing is delayed and financing is not completed during the rate lock's specified time period, you will be refinancing at the current rate. If rates fell during the rate lock period, this would be to your advantage. However, if rates had risen, you would have to refinance at the new, higher rate, something you were trying to avoid by using a rate lock in the first place.

The cost of a rate lock runs about 1/8 percent to 3/8 percent of the loan amount and may come in the form of a flat fee, percentage of the mortgage, or a slightly higher interest rate. When searching for the best interest rates and closing costs, you also may want to look for the best rate lock you can find.

Probably the most important aspect of getting the most out of a rate lock is determining its duration. For example, assume you are refinancing and interest rates have dropped to a level at which you would like to lock in. Once you have chosen a lender, ask that he or she estimate the time it will take to process your loan. If possible, get the estimate in writing. Also estimate how long it will take for you to submit all of your paperwork. Anticipate all possible delays. This is especially important when purchasing a new house. Construction delays can push the closing past the rate lock expiration date. Keep in mind that during times of low rates, many people will be getting mortgage loans. Banks, appraisers, title-search companies, mortgage brokers, and anyone else involved in the process will be very busy. Any delay by one may slow the entire process. With all of that in mind, decide how long you would like to lock in, between 15 and 60 days is most common. The longer the period of time the higher the cost of the rate lock.

Lastly, obtain a legal, written contract of your rate lock and keep a copy for yourself. Do not accept verbal promises. The contract should state your name, date of the agreement, the starting and expiration dates, options available after the expiration date, cost of the rate lock, and most importantly the interest rate, closing costs, and any other loan features you are locking in. Rate locks can be instrumental to refinancing or securing a loan on a new home when aptly planned.

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