What Is A Mortgage Rate Lock?
This BLOG On What Is A Mortgage Rate Lock Was Written By Gustan Cho
A mortgage rate lock is when a lender locks a mortgage rate for a certain period of time. A lender will do a mortgage rate lock for a period of the following:
- 15 day lock
- 30 day lock
- 45 day lock
- 60 day lock
When a mortgage does a mortgage rate lock, that mortgage interest rate is protected in the event the mortgage rates goes up. On the flip side, if the mortgage interest rates goes down, the borrower is stuck with the mortgage rate lock and cannot cancel the mortgage rate lock for the lower rate. A mortgage lender needs to do a mortgage rate lock in order for an underwriter to issue a clear to close . The longer the mortgage rate lock is, the more of a premium that it costs. In a way, a mortgage rate lock is like an insurance policy protecting a higher mortgage interest rates. Mortgage rate lock is more important on a refinance mortgage process than it is on a home purchase process.
The Mortgage Process And When Do You Lock Your Rates
The mortgage process is series of stages a borrower goes through. Somewhere in the mortgage process, the lender will need to lock the rate for your mortgage loan. Here is the basic mortgage process:
- The first stage of the mortgage process is the pre-approval stage
- A borrower will consult with a loan officer and the lender will pre-approve the borrower by completing a mortgage loan application, running credit, reviewing docs, and running the file through the automated underwriting system for an automated approval
- Once you have a solid pre-approval letter, you can enter into an real estate purchase contract
- Once you have an executed home purchase contract signed by the sellers, the mortgage process start
- A mortgage processor will process your loan and submit it to the underwriter
- Once the underwriter reviews your file, the underwriter will issue a conditional loan approval
- Once you satisfy the conditions on the conditional loan approval, the processor will ask the loan officer to do a mortgage rate lock and submit the file back to the underwriter for a clear to close
- The mortgage underwriter will make sure that there is enough time with the mortgage rate lock before issuing a clear to close
- Once the underwriter issues the clear to close, docs will be sent out to the title company and the title company will schedule the closing
- Wire will be wired to the title company on the closing date and the closing will be done at the title company
Can Mortgage Rates Change During Mortgage Process?
Mortgage Rates can change several times per day. When a loan officer issues the Loan Estimate, which used to be the Good Faith Estimate, it states a mortgage interest rate. This rate is an estimation and normally is higher than the actual mortgage rate the borrower will get. However, the mortgage rates will be floating until the loan officer locks the mortgage interest rates. Mortgage rates will fluctuate daily and change and a borrower’s mortgage rates are not guaranteed until the mortgage loan originator locks the mortgage rates. Most mortgage loan originators will lock a mortgage interest rate once the borrower gets a conditional mortgage loan approval while other loan officers may not lock it until all conditions have been satisfied and the file is ready to be submitted for a clear to close. On refinance mortgage borrowers, many loan officers do not want to take a chance of mortgage rates sky rocketing and will not take any chances and lock the mortgage interest rates way before the conditional loan approval. Other loan officers will do a long term 45 day or 60 day mortgage rate lock on a refinance the minute the mortgage loan is registered.
Most loan officers will do a 15 day mortgage rate lock or 30 day mortgage rate lock. However, there are times where your mortgage rate lock expires and when this happens, your loan officer will ask for one free lock extension. However, multiple mortgage rate lock extensions will cost and sometimes lock extensions can cost a lot especially when rates are on the upswing. With TRID, loan officers needs to especially pay with the closing date and make sure that they have enough of a mortgage lock period.