In the market for a new home? With mortgage rates rising, you may want to consider a mortgage rate lock.

What is a mortgage rate lock?

A rate lock freezes an interest rate on a mortgage for a period of time. The lender guarantees (with a few exceptions) that the mortgage rate offered will remain available  for a specific amount of time. This means you don’t have to worry if rates go up between the time you submit an offer and close on the house.

Mortgage rate locks typically last from 30 to 60 days, though they can also last 120 days or more. Some lenders may offer a free rate lock for a specified amount of time. After that, however, the lender may charge fees for extending the lock.

When to lock in a mortgage rate

You can’t lock in a rate until after the initial loan approval. However, many borrowers wait until they have found a home to purchase.

Borrowers typically wait because they don’t know how many days it will take to find a home and have an offer accepted. They worry that by locking in too early, they may miss the opportunity for a better rate.

A longer rate lock is more expensive. For example, a borrower who chooses a 30-day lock on a loan may pay a 4.875 percent rate and zero points, while a 60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly higher rate with a half-point.

However, with mortgage rates rising, you might consider jumping on the lower rate as soon as possible. Even a small hike, such as a quarter of a point, can mean a difference of hundreds or thousands of dollars in interest each year.

What to ask your lender before you lock

Be sure to get a clear explanation of your lender’s rate lock rules. Find out if your locked rate can change in certain circumstances — for example, if mortgage rates drop, or if you change from a 30-year fixed-rate mortgage to an FHA loan.

Finally, confirm that your rate lock is long enough to cover the entire closing process. For example, if you anticipate that your closing will take longer than a month, talk to your lender about locking in a rate for that period without paying fees.

Make sure you’re financially prepared

Before you lock in a rate, make sure your budget is in order and you are financially prepared to apply for a mortgage.

Ask yourself these questions:

  • Is my credit score good enough to prequalify?
  • Do I know how much I want to spend on monthly mortgage payments?
  • Have I looked for homes in my budget?

If you lock in a rate too soon and end up going with a different type of loan, your rate lock might be void. Borrowers also can lose a rate lock if their circumstances change — such as a shift in their credit score or in their debt-to-income ratio — before settlement.

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