What is a Rate Lock?
Interest rates fluctuate daily based on a variety of different reasons. Whether they go up or down, even just a hundredth of a percentage point can mean a major difference when dealing with a loan that equals thousands of dollars. These fluctuations make it all the more important that when you find a deal you are comfortable with that you lock it into place. Rate locks are exactly the tool that enable you to do so.
How does a Rate Lock work?
A rate lock operates exactly as the name suggests it does by locking the interest rate at a specific amount. These rate lock agreements between you and the mortgage lender, freeze the current interest rate for a certain amount of time, which is typically around forty five days . This lock is typically imposed at the end of a term at the end of which you are closing on your house.
This lock is to provide additional protection from any temporary rate spikes. This protection allows for you to have the time to finalize everything from your appraisal, inspection, and documentation.
While this tool can be utilized to ensure that you as the borrower are able to quickly finish off your debt there are a few pitfalls to watch out for such as; be aware of the fact that appraisers often get busy. Most home loans require an appraisal, regardless of whether it’s a purchase or refinance. As people are always able to do both of those things, the increasing number of appraisal appointments should increase your drive to obtain an appraisal as soon as possible.
The other pitfall is that you should know you’re states regulations on timing and appraisals and / or closing as different states can have very different rules.