Locking in a mortgage rate can result in long-term savings

Mortgage rates are a moving target. You may be pleasantly surprised to find that you can get a rate lower than one that was quoted to you at the start of the process. Unfortunately, the available rate may also have increased since then.

Rates can change considerably in a short amount of time. For example, the average rate for a 30-year fixed rate mortgage at the beginning of January 2018 was 3.95 percent, but was up to 4.22 percent at the start of the next month and 4.43 percent at the beginning of March 2018.

This kind of swing can have a considerable impact on your loan. Keith Gumbinger, writing for the mortgage resource HSH.com, says you'll need to pay more in interest each month, which will add up to thousands of dollars by the end of a standard 30-year loan period. Broderick Perkins, writing for the legal site Nolo, says an upward shift in the interest rate may require you to pay points or put down more cash to ensure that the mortgage will be approved.

Locking in a mortgage rate helps protect you against these unexpected increases. While getting a lock comes at a cost, it can be preferable to paying more in interest over the life of the loan.

Buyers are often encouraged to lock in a mortgage rate. Adam Hayes, writing for the financial site Investopedia, says lenders may even charge a fee if a buyer doesn't fix the rate, or set a slightly higher rate in case the buyer chooses not to get a lock.

A mortgage rate lock will only preserve the rate for a brief period of time, since it is designed to cover the period from the loan approval to the closing of the home purchase. Gumbinger says lenders often provide a complimentary 30- or 45-day lock, and may lock in a rate for 60 days at the cost of a nominal fee. Hayes says a longer period may also require you to agree to a slightly higher mortgage rate, since there is a greater chance that rates will change in that time.

Naturally, a mortgage rate lock is most advantageous if rates increase while you're applying for the loan. The real estate site Zillow says you'll pay the lower rate for as long as the lock extends.

You should choose a term in which you believe you can complete the loan application process. A lender no longer needs to guarantee the lower rate once the term expires, though they may agree to extend it.

One risk of locking in a mortgage rate is that rates might have decreased by the end of your loan application. You'll have to pay the higher rate you agreed to unless you have a "float down" provision or rewrite the lock for the lower rate; either step can come at a higher cost.

It can be difficult to decide whether a mortgage rate lock will be a prudent or risky step. Hal M. Bundrick, writing for the financial site NerdWallet, says you should consider locking in the rate if you are satisfied with it and it provides you with an affordable monthly payment. Gumbinger says you should also follow the financial markets to see if there are any indicators that rates might increase or decrease, and consider the available terms and the cost of locking in a rate.

Even after your rate is locked in, certain factors may alter it. Bundrick says a lender might void a lock if the loan is revised, or if factors such as your credit score or income change during the loan application. Hayes says lenders may incorporate a cap into the lock, allowing a rate to increase up to a certain point instead of truly locking it in.

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