Real Estate Finance Alerts

5 Rate Lock Secrets That Will Save You Money

Before closing, every loan must be “locked” where the lender commits to a borrower for a specific loan, rate, and fee. A few secrets can reduce your risk and save you money. Yet, many lenders don’t provide this information. Make sure you know them before locking your next loan.

Rate Lock Secret # 1: Lock Immediately. If rates get better, you can improve your rate. As soon as you have a purchase contract or as soon as you hit your target rate on a refinance, lock your loan. Even if you think rates will go down tomorrow or next week, lock your loan right away. You don’t need to gamble or be right about rates if you lock right away.

Rate Lock Secret # 2: Know the Lock Extension Policy. You probably won’t need an extension, but you must know the costs in case you do. Lock extension fees and terms vary greatly and some lenders do not allow them. Delays can easily occur when buyers and sellers negotiate and fix inspection items. Errors or credit surprises can delay refinances. Before you lock, know the following: Can you extend? When? How many times? What are the costs?

Rate Lock Secret # 3: Look At Different Lock Periods. A longer rate lock can save you money. The cost of a 45-day lock is usually less expensive than a 30-day lock with a 5-day extension. So, a 45-day lock would save money if you need an extension. Before you lock your rate, compare different lock periods with different lenders since their pricing can vary greatly.

Rate Lock Secret # 4: Know the Rate Re-Lock Policy. Know how to relock your loan if rates go down. This is very important because some lenders do not allow rate re-locks. Most lenders require that your rate improve by 0.375% or more and charge a large fee, but some only require a 0.125% improvement and smaller fee. With current market volatility, you can often lower your rate by choosing the right lender and knowing the rules in advance.

Rate Lock Secret # 5: Determine if Another Lender Offers Your Loan. Use a longer lock period when no other lender offers your loan. If loan requirements change, you are usually exempt until your initial lock expires. The changes can cost a lot and even eliminate your loan.

Make Sure Your Loan Officer Passes the Test. A good broker will automatically discuss these issues with you. A broker who doesn’t will cost you money and is someone you should avoid.