When is the Best Time to Lock?

Mortgage and Lending with Progressive Mortgage
I always advise my clients to lock in their interest rate at the earliest opportunity. Gambling with a client's interest rate is never advisable. In my business, I have a standardized system in place that we adhere to for all of our clientele.

A mortgage loan cannot be closed without locking in a rate, and there are three main elements to take into consideration:
  • Interest Rate
  • Points
  • Length of the lock

Locking in on a rate does not obligate the client to commit to the loan until the loan is actually closed. The lock simply eliminates any risk of the borrower being exposed to market volatility. It provides the security of having time to complete the mortgage and Real Estate transactions with some sense of order. The lender must disburse funds to complete the transaction within the rate-lock period, or else the original commitment to provide a loan at a certain interest rate will expire.

When a lender permits an extended lock-in period, the borrower will usually see either a higher interest rate or more points associated with the loan. The lender does this to minimize their own exposure to market volatility; hence the borrower pays for the lender to take on this risk.

For example, a 30-day rate lock commitment may cost the consumer one-half point, while a 60-day rate lock commitment could cost 1 full point. If the borrower needed an extended lock period, but did not want to pay points, the lender could make up the difference in the interest rate. In this case, typically, a 60-day lock would have a higher interest rate than a 30-day lock.

In my business, our standard procedure is to lock in a rate as quickly as possible once we have received the loan application. My team and I let our clients know that while interest rates fluctuate daily, most lenders do not want to lose any business. We know that in many cases, if there is a significant rally in the market that causes interest rates to drop 0.25% or more, we can ask the lender to renegotiate the rate. Often the lender allows for a renegotiation to avoid potentially losing the loan to another lender.

If we allow our clients to sit on the fence and not lock in a rate quickly, we would leave them exposed to market volatility. Then, if rates do increase, the borrower may be unable to qualify for the loan they want, which is a situation we try to avoid at all costs.

By knowing our clients' needs and working intimately with them to make the right decisions, my team and I are proud to say that we have many clients who are raving fans.

Comments (3)

Tara Colquitt
Tara Colquitt, The Credit Woman, LLC - Philadelphia, PA
Credit Counselor

Chris, you know your business.

A good friend last year had the unfortunate experience of her broker (a friend of her husband), not locking the rate. I don't know all the particulars, but a <7% rate went to 11%. You can imagine there was chaos for a few days. My friend would not (who would?!?) purchase at that crazy rate. And it was only 3 weeks before settlement. The broker did get the original rate, but of course there were hard feelings all around. I don't know why he didn't lock, but he lost more than a business deal. 

Jan 14, 2008 08:44 PM
- -
- - Bogota, TN

Thanks for you for taking the time to comment on this subject in the Active Rain network.  AR is the new "cyber backbone" of the industry, and with it's uplink to Localism.com it is transforming the real estate marketplace. Agents who don't see which way the cyberwind is blowing are going to find themselves at a considerable disadvantage inside of three to five years.

Jul 08, 2008 04:54 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

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