The average rate lock is for 30 days. That’s the typical rate lock a lender will offer free of charge. Of course, you can lock your rate for less or more time if needed. If you lock for less than 30 days, you’ll still get it for ‘free.’ If you need more than 30 days, though, expect to pay extension fees.
You can lock an interest rate for as long as 120 days. Unless you stumble across an interest rate that is unbeatable, though, you probably don’t want to lock a rate for that long. A 120-day lock can put the lender at risk of a loss. If interest rates really skyrocket yet you have a low rate locked in, the lender will make very little on your loan. In order to make up for that risk, the lender may charge you a fee.
What do Lenders Charge for Long Locks?
If you decide you want that longer lock period, you’ll see the fee as points. Let’s say you could have a 30-day lock at 4.0% with no points. But you decide you need a longer lock. The lender may quote you a 60-day lock at the same rate, but charge you a point. A point is one percent of your loan amount. Some lenders may only charge you a half of a point, but also quote you a slightly higher interest rate.
Each lender charges something different for long locks. It’s important to ask this question when you are shopping around for a lender. You don’t want to find out the hard way that a lock is going to cost you money. Use this as part of your comparison as you choose the lender that is right for you.
Knowing the Lock Rules
Before you choose a lender and/or lock in your interest rate, ask the lender about their lock rules, as each lender will differ. Ask the lender the following questions:
- What happens if interest rates drop? Do you have the option to take the lower rate for a fee?
- What happens if you change loan programs? Is your lock still effective or do you have to lock in a new rate?
- What happens if your lock expires? What will it cost?
Acting Fast Once you Lock Your Rate
It’s important to remember that you have to act fast once you lock your interest rate. It’s not just the lender that is under the gun, but you are too. You have to provide the lender with the appropriate paperwork and information so that they can process your loan.
Stay in close contact with your loan officer. Periodically ask about the status of your loan and if there are any documents, you need to provide. The more time you have to gather your documents and get them in, the less likely it is that your rate lock will expire.
In a perfect world, you’d lock your interest rate for 30 days. Some banks offer slightly longer rate locks at no charge. Most banks, however, charge a higher rate or fees to extend the lock much more than 30 days.