How to Lock in a Mortgage Rate Sacramento CA

Steps

1. Understand the difference between a rate lock and a rate quote. A rate quote is simply an estimate of what your rate will be. If interest rates change, your rate will change. Depending on where you are in the loan application process, other factors, such as income, loan-to-value ratio, and your credit rating may also cause the rate to change. A rate lock, however, is a legally binding promise that you will get a specified rate.
2. Make sure all your ducks are in a row. You can typically lock in a rate anytime you locate a property, and up to 5 days before the closing. Rate locks are valid for a certain length of time, which could be anywhere from 7 days to several months. If settlement doesn't occur within that time, the rate lock expires and is no longer valid. Unfortunately, the loan process is fraught with complications and can sometimes take quite some time, so it's important that you have all the documents ready that your lender requires, and that you know that the house will be ready for purchase by the time the lock expires. You should try to find out how long it generally takes to process mortgage loans in your area, and you should ask your lender for an estimate of how long it will take to process your loan in particular.
3. Get the rate lock in writing. A verbal rate lock, while technically enforceable, is practically worthless. There is nothing more important to understand about rate locks than this fact. Any rate lock should be in the form of a legally binding document. This may be in the form of a lock-in form that accompanies a "letter of commitment" or "loan-commitment letter," or it may be on the letter of commitment itself. It's important to understand that not loan-commitment letters actually contain lock-in terms. The lock-in document should include both your name and the name of the lender, and the amount to be loaned, the interest rate, points, and any lock-in fees should be clearly specified. The letter should also indicate the date the lock was initiated and the date that the lock expires (or the number of days for which the lock is valid). Read the document carefully, and make sure you understand it fully. Sometimes, especially with unscrupulous lenders, the small print may void the rate lock in certain circumstances that are completely out of your control.
4. Decide whether you should lock in a rate. If interest rates are likely to rise before you close on a house (before settlement), you should lock in a rate. Interest rates may also fall, however, in which case the rate you lock in will be higher than the rate you could otherwise get. Under certain circumstances you can back out of a locked-in rate, but to be safe you generally only want to lock in a rate if interest rates may rise. Will they? That's the problem: nobody knows for sure. Do your research and find out what is likely to happen. A number of websites offer predictions, and you can find speculation on what interest rates will do in just about any newspaper.
5. Make sure the rate lock is valid for long enough to settle the loan. A 7-day rate lock won't do you any good if you know (from step 2 above) that it will take at least 30 days to process your loan. Make sure the lock allows you ample time for settlement.
   • Be prepared to pay a fee for longer lock terms. Some lenders charge a small fee for any rate lock, but many don't charge for locks up to 30 days. For longer locks you may have to pay an upfront fee, usually between 1/4 and 1/2 of a point (a "point" is equal to 1% of the loan amount). This fee may also be added on to the loan amount.
6. Watch out for rate caps. Some rate locks come with rate caps, which essentially say that the rate is locked-in, but that if interest rates rise the lender may offer you a rate that is somewhat higher, as long as it's below the cap. There's nothing really wrong with rate caps, and they're quite common, but you need to be aware of them and watch out for caps that are so high that the lock-in becomes worthless. As a rule of thumb, the rate cap shouldn't be any more than 1/4%, such that if you locked in a 7% rate it could go up to 7.25%.
7. Try to get an option to get a lower rate. If interest rates fall during the lock period, you want to be able to take advantage of the lower rates. In order to do so, however, you'll need a "float-down" option included in the letter of commitment. This will give you the option to grab a lower rate if it becomes available. Not all lenders will provide such an option, and you may have to pay a fee for it. You will also generally be able to exercise this option only once. What's more, depending on specifics of the contract, you may also be obligated to a higher rate if rates float up.
8. Settle the loan before the lock expires. With the rate lock in place, you simply need to settle the loan before the expiration date to take advantage of the lock.

Tips

• Even if you think interest rates may soon drop it can be a good idea to lock in a rate if you know that you may not be able to afford the house you want if rates were to rise. In this case, the probability that rates may decrease may be outweighed by the risk that you won't be able to buy the house if they rise.
• No one but you can decide whether to lock in a rate on your loan. Remember, there is risk either way, so you have to carefully consider your circumstances and the market, and make your own decision.
• If your lock-in includes a "float down" option, be sure to watch mortgage rates carefully. Your broker may not have the time to watch the rates and notify you of decreases, so the responsibility is yours to get the lowest rate possible.
• Lock-ins can come in several general forms. A rate and points lock-in guarantees a specified interest rate and upfront costs, but you can also get a commitment on the rate only (with floating points) or with floating points and a floating rate. In the latter case, the points and the rate float with market conditions, so the total cost of your mortgage isn't really locked in at the time of the commitment. You can then lock in a rate and points at any time during the lock period, usually up to 5 days before settlement. This option can be advantageous if rates decline, but it can also result in a substantially higher cost if rates (or the points the lender is charging) increase.

Warnings

• Interest rates cannot be predicted with any certainty. The predictions you see in the financial pages of the newspaper or on websites are guesses. Some of these guesses are better than others, but none are guaranteed to be right.
• A lock-in is a legal agreement between you and the lender. The lender must keep its part of the bargain, but in general you must, too. This means that if rates drop (and there's no floating provision in your lock-in) you're still obligated to pay the higher, locked-in rate. Of course you can avoid this by dragging your feet to delay the closing, but this can backfire. Rates could rise again; you might not be able to get approved for the same rate with the same number of points; the broker or lender may refuse to work with you; or you may lose your opportunity to buy the house.
• Unscrupulous brokers are known to claim a rate is locked in when it isn't, and there are plenty of other tricks they may use to rip you off or to delay the processing of your loan so that your lock-in expires. The best defense is to choose a reputable broker and, most importantly, to carefully read all your loan documents and make sure you understand them before signing them. If the broker or lender drags their feet to prevent you from getting the lower rate, complain. Talk to a supervisor and threaten legal action and a complaint to regulators. If you still can't resolve the matter, contact the appropriate state or federal regulatory agency to file a complaint.
• This article is a general guide only and is not intended to replace professional legal or financial advice.

Sources and Citations

• U.S. Federal Reserve Consumer information about lock-ins, including questions to ask your lender or broker and relevant federal agencies.
• BankRate.com Should you lock in now? Mortgage trend analysis based on a survey of mortgage professionals--but it's still just guesswork.

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