What Does It Mean To “Lock In” A Rate?


Locking a mortgage rate is a lender’s promise to keep a specific interest rate on hold for a period of time while your loan application is being processed. Since mortgage rates change daily, this prevents your mortgage rate from changing. Locking a mortgage rate can vary in its length. A longer rate lock periods can cost more. There are many ways besides selecting a shorter rate lock period, to get a lower rate. A larger down payment will result in a lower interest rate because you’re starting out with more equity. Or, you can pay more points to lower your rate over the life of the loan, which means you pay more up front. For most people, this makes good sense and is a good bargain.

What Is A "Point"?

A point is the term used for pre-paid interest on a loan and often results in a discount on the interest rate over the life of the loan. Buying 1 point = 1% of the total loan amount. Keep in mind discount points paid for on a purchase transaction for a primary residence are tax-deductible in the year that they are paid.

What Are Closing Costs?

Closing Costs consist of fees associated with generating the loan. Some of the costs associated with closing a loan are your downpayment, taxes, points, and homeowners insurance. Closing costs will vary depending on the state you live in. For the most part, people will pay closing costs when they sign on the dotted line. However, there are options to finance closing costs. Paying closing costs when the loan actually closes will reduce your interest rate.

Finally, the interest rate a lender is willing to offer you depends on your credit score and your debt-to-income ratio. If your credit is good and your income exceeds your debt by a good amount, you will qualify for a lower rate.

Contributing Author: Evan Jansen

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