The Real McCoy: What should you choose, lock or lose?

By: Kari McCoy
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Dear Kari, My husband and I wanted to refinance our home. I called a referred loan company and I thought I heard the rate. When we got to the office, the rate was considerably higher. My husband was upset with me and the lender said we did not lock the rate. What did we do wrong? Answer: With mortgage interest rates seeming to be inching upward, locking in your loan rate is a serious issue for new homebuyers and homeowners who want to refinance. Understanding what rate locks are and knowing how they work prepares you to evaluate your options. While you’re applying for a mortgage loan, interest rates may rise and fall. If you want assurance that the low interest rate on your loan won’t increase while you’re waiting for approval, ask for a rate lock. A conventional rate lock is a guarantee from the lender that your mortgage will carry a particular interest rate, with specific predetermined points and costs. Rate locks make sense if interest rates are on the upswing and you are not comfortable with higher monthly payments. So if you’ve decided to ask for a rate lock on your mortgage while your loan is being processed, it’s important to be absolutely clear on your lender’s lock policy. First, ask how long it will take to process your loan. The interest rate is “locked in” for a specified period of time, usually 30 days. When you call a lender for a rate quote, ask how long that rate will last. If you think you might need more than 30 days to complete your home purchase or refinance, tell your lender how many days you’ll require and they will give you an adjusted rate quote. If you locked exactly 30 days ago and are closing on your loan the same day the rate expires, you need to make sure there are no last-minute document requests from the lender that will delay final loan approval. Some lenders ask for an application fee before allowing you to lock in an interest rate, so ask if there are costs involved. If you have locked in your loan, you should request a lock confirmation in writing. This confirmation must show the exact note rate, how long the lock lasts and any points or ordination fees. If rates continue to rise, you safeguard your loan by locking in a low rate now. However, if interest rates fall during the lock period, you typically can’t take advantage of them unless you rewrite the lock. If you fail to complete your home purchase or refinance before the time runs out and interest rates rise, you will be obligated to pay the higher rate. Can you afford the risk of a further increase in rates? If not, lock in your loan rate now and make sure you ask for ample time to complete your home purchase transaction. Kari McCoy has been a Realtor for 25 years and owns the Kari McCoy Group, Residential Real Estate, at Coldwell Banker. She can be reached at 941-9540, or at