The Best Time to a Lock a Rate for a Mortgage Loan

Interest rates can change on a daily basis. Some days interest rates go up. Some days interest rates go down. And some days interest rates stay the same. So how do you know the best time to lock the interest rate on your loan? Unfortunately, there is no scientific answer to this question, but there are some indicators that can help you decide the best time to lock your interest rate.

Find Out How An Interest Rate Lock Will Affects Your Mortgage Loan 

You should talk with your mortgage lender to find information on their interest rate lock policy. Usually there is a lock-in fee associated with locking your interest rate. Since this is an upfront and usually non-refundable charge, it is not something that you want to do on a whim. Lock-in rates can be a couple of hundred dollars or a percentage of your mortgage amount so the price to pay is high. This fee is often times credited toward your closing costs but they will usually not refund the fee outright to you for any reason.
 
The typical mortgage lender will allow your interest rate to float until one week prior to your closing date. If interest rates are expected to remain constant then there may not be a need to pay the upfront lock-in fee. Even if the rate changes by a quarter of a percent, the effect on your mortgage payment will only be a few dollars. So is it really worth it to pay hundreds of dollars for that assurance? The answer is probably not.
 
On the other hand if interest rates are expected to drastically change in the time period before your automatic interest rate lock occurs, then it may be beneficial to lock-in the interest rate right away.

Monitor the Interest Rate Environment and Lock-In at the Right Moment

The interest rate environment is the most important thing to consider when you are trying to decide when is the most appropriate time for you to lock your interest rate. If interest rates are expected to drop (maybe the Federal Reserve has hinted about dropping the rates), then the last thing that you want to do is lock-in your interest rate to find out that two weeks later the current interest rate is lower. Most lenders’ lock-in policies do not allow you to get out of your rate lock in a situation like this to obtain the lower interest rate, so you are stuck with the higher rate that you locked previously.

Since the time-frame between buying a home and closing on the mortgage is usually 30 days or so, and since the interest rate environment of late has not had drastic swings in the interest rate changes, the likelihood of the interest rate jumping on you too much has been slim. If we were in an interest rate environment where there are big jumps in the interest rate then it may be beneficial to lock-in your interest rate at the point where you feel, and economic indicators have suggested, that the interest rates are at their lowest point.