Monday May 22, 2017

What is a Rate Lock?

The changing values of interest rates can work against you when you purchase a home.  Is there a way around these changing interest rates?  Some lenders do allow you to lock your interest rate in at a particular value.

This is known simply as a rate lock. A rate lock will be held in place for a specific timeframe, usually expressed as a certain number of days.

If the rate lock spans the duration of your mortgage, come closing time you will receive that rate—even if the interest rates of mortgages around you have shot upward.


A rate lock can be beneficial, particularly in an economic climate as uncertain as this one.  If rates jump at some point in the future, and you’ve locked in a rate now, you won’t be impacted by the spike.

Of course, interest rates right now are pretty high, so maybe this isn’t the best time to get a rate lock.  In many ways you’re making a bet—you’re betting rates will go up or stay even, and not go down.

If you did manage to get a good interest rate, and you know for sure that you’d be okay with that interest rate in the future, it might be a good idea to get a rate lock, because then at least you’ll have protected yourself from uncertainty.

Just acknowledge in advance that the rates of the homes around you could drop, and you could end up stuck with the higher interest rate. 

Should you get a rate lock or not then?  This depends on the current interest rate when you buy, the uncertainty level in the housing market, your own intuition, and also your personality.

A rate lock may be beneficial if you value stability—but may not if you truly believe that interest rates will be going down in the future.  What you believe could still be wrong though, and then you’ll have no idea what will happen.

Both choices are risky—but a rate lock is a known risk, while a fluctuating rate could venture into unforeseen territory.

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