Loan Locks / Locking in an Interest Rate

With a loan lock, the lender agrees to secure (or lock in) an interest rate for the mortgage loan. The loan lock occurs during the mortgage application process, so the borrower knows what the interest rate will be before closing. Once the interest rate is locked in, the lender is required to honor that interest rate, even if the market rates change between the loan lock and the closing date. During the application process, the borrower must decide when they want to stop shopping around for loans with lower interest rates and commit to a loan and lock in an interest rate.

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The Benefit of a Loan Lock

Locking in a rate can provide a sense of security to the borrower. A loan lock protects the buyer against the possibility of rising interest rates. Once the interest rate is locked in, the borrower will have a better idea of what their monthly mortgage payment will be. If you lock in an interest rate at 5%, and the rates increase to 6% between the rate lock and the closing date, you will have saved 1% interest on the principal of the loan. This could help you save thousands of dollars a year. If you opt out of a loan lock and instead decide to go with the current rate at closing, you risk ending up with a higher interest rate and as a result, higher monthly payments for the life of the loan.

The Best Time to Lock in your Rate

After the homebuyer signs a purchase agreement on the property they intend to buy, it’s time to search for a mortgage with a low interest rate. Once you find a loan with a good rate, ask your lender to confirm the rate lock in writing. Loan locks typically have an expiration date (between two weeks and two months), so you want to make sure you are on track to close before the rate lock expires.

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The Price of a Loan Lock

For loan locks that are 60 days or less, the lender typically will not charge the borrower. For longer term locks, they might. A loan lock fee could be a flat rate, or a percentage of the mortgage. The price of a loan lock is typically a one-time charge that is not refundable. To learn more about how to lock in a loan with a low interest rate, call Signature Lending Services at 877-948-2562. We can help explain the process of locking in a loan, and help you figure out when the timing is right to do so.