How to Lock a Mortgage Rate

Arizona Mortgage Rate Lock

How to Lock in a Mortgage Rate

How does a home buyer lock in the best Arizona mortgage rate?  In a stable market where rates are barely moving this is not a a borrower’s primary concern.  In a market like today’s “wild ride” mortgage rate environment, buyer’s and those looking to save money with by refinancing are eager to lock in the best Arizona mortgage rate as soon as possible.  There is a very specific time to lock in your mortgage rate AND there are also different strategies you and your Arizona mortgage lender can use to make sure you get the best mortgage rate available (we will cover the strategy piece in another post).

When to lock in a mortgage rate

When you lock in a mortgage rate there are a few basic fundamentals that you must follow – a couple of  “rules” if you will.   Those rules are:

RULE #1:  Have a specific property address

On a refinance this is easy.  The specific address is the property that is being refinanced.   On a purchase, RULE #1 means that a borrower must have a property under contract to buy in order to lock in a mortgage rate.   You cannot lock in a mortgage rate without a having specific property that is being financed.

RULE #2: Know your closing time-frame & lock through your closing date

An Arizona loan officer can lock in your mortgage rate in for different periods of time.   A mortgage rate must be locked through the date a borrower’s loan funds.  Standard mortgage rate lock periods are typically 30 days.  This means that once your loan officer locks your rate in, your rate is “good” for a 30 day period.  As long as your loan closes on or before the day your lock expires your mortgage rate  on your new loan will be equal to the rate you locked in at for the life of your loan (on fixed rate loan products).   After 30 days (in this case) your mortgage rate lock would expire at which point there are 2 options relative to your mortgage rate:

1. If you let your mortgage rate lock expire you could then re-lock at either the then current market mortgage interest rate OR your old expired mortgage rate whichever was higher (this is known as “worst case pricing”)   OR
2. You could pay a lock extension fee to extend your lock beyond the 30 day lock period.  Lock extension fees vary from lender to lender however a good rule of thumb is a cost of .3% of your loan amount per day extended (that equates to $30 per day extended per every $100,000)

Many Arizona mortgage companies also offer extended mortgage rate locks.  They typically come in 45 day, 60 day and 90 day varieties.  If you were to lock your rate for 45, 60 or 90 days the old saying we learn on day 1 of Econ 101 “there is no such thing as a free lunch” would apply.  You/the borrower pays for an extended lock in one form or another.  You would either:

1. Lock at a higher rate (the longer the lock term the higher the locked rate –  ex: if a 30 day lock = 4.5%  then a 45 day lock may = 4.625%)   OR
2. Keep the same rate as the 30 day/standard lock rate and pay additional origination fees (ex: if a 30 day lock = 4.5% with 0% points/fees than a 45 day lock at 4.5% may have a .25% origination fee to pay for the extended lock term)

How to officially lock your mortgage rate

Many Phoenix area mortgage lenders require no specific action from the borrower to lock in a mortgage rate.  Other Arizona mortgage companies require that the borrower fill out and/or sign a lock in form before they can lock in their rate.  It is important to understand what your lender’s locking policy is.  The HOUSE Team does NOT require that our clients sign any documentation in order to lock in their interest rate.

It is important you work with your lender to discuss mortgage rate locking options.  If you have any questions about how to lock in a mortgage rate please call or email today.

Phone:  602.435.2149

By Jeremy House

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