Mortgage Rate Locks: Pros and Cons for Homebuyers

As a homebuyer, you have plenty of crucial decisions to make when it comes to financing your future home, especially if you’re getting a mortgage loan. In addition to finding the right lender and getting preapproved, you should also consider mortgage rate locks and if they’re right for you.

What Are Mortgage Rate Locks, and How Do They Work?

Mortgage rate locks sound just like what they describe: it’s the act of locking in the rate of your mortgage so it stays at the same rate for a period of time. While this may seem appealing at first glance, there are pros and cons you need to weigh before you decide whether or not to lock your mortgage rate.

Mortgage rate locks are a request you can submit to your mortgage lender, and can take place upon preapproval or at the time the seller accepts your offer. The time frames in which you can lock your mortgage rate also vary by lender, and can be anywhere from 30 to 120 days, with some lenders even offering a full year. This means you would pay the same mortgage rate you locked in on the first day for the remaining time period.

While this sounds like a good deal in and of itself, there are pros and cons to consider with mortgage rate locks.

The Pros of Mortgage Rate Locks

Now that you know what a mortgage rate lock is and how it works, you may be trying to determine if a mortgage rate lock is the right path for your mortgage loan. Here are some key upsides to consider.

You Have Leeway if Mortgage Rates Increase

If you decide to secure a mortgage rate lock, you’re securing the market’s current interest rate. This is great if mortgage rates go up after you’ve locked in your rate. Let’s say your mortgage rate today is 5%, and the market jumps up to 7%. If you lock in the 5%, it’ll stay at that rate for the duration of the mortgage lock period. Having this layer of security can be invaluable to homebuyers.

You Can Save More on Your Monthly Payments

Unsurprisingly, a huge pro of mortgage rate locks is being able to save on the amount of your monthly payments. With a lower interest rate secured, you can shave off excess dollars owed for the duration of the mortgage rate lock. Using the previous example, let’s do some math:

• Your future home’s price: $500,000
• Your mortgage rate lock: 5%
• The market interest rate: 7%

Your mortgage rate lock can help you only pay $25,000 in interest. But if you didn’t engage in locking your mortgage rate, you’d owe $35,000 in interest. The numbers speak for themselves — locking in a lower interest rate can be a huge plus.

It Takes (Some) Homebuying Stress Off Your Shoulders

Buying a home is stressful, regardless of whether or not it’s your very first property purchase. There’s so many crucial decisions to make, timelines that test your patience, and seemingly endless steps to the process. If you pursue a mortgage rate lock, you can take one more source of stress off your plate. Just take a look at the two benefits we listed above.

The Cons of Mortgage Rate Locks

Do mortgage rate locks sound a little too good to be true? Not necessarily. But you still have to do your due diligence, since there are potential negatives to securing a mortgage rate lock. Consider these downsides before making your final decision.

Interest Rates May Decrease

Believe it or not, there is the chance interest rates could fall after you lock in your mortgage rate, which can prevent you from securing the lowest rate possible. If the market conditions lead to interest rates decreasing at a somewhat steady clip, you may need to seriously consider if a mortgage rate lock is right for you.

Some lenders will allow you to readjust and pay accordingly if rates decrease by a certain amount, so be sure to ask your lender and read the fine print before you choose whether or not to proceed.

Prepare to Pay if You Want to Extend Your Mortgage Rate Lock

Mortgage rate locks have a duration of anywhere from 30 to 120 days on average, and if you want to extend that timeframe, you’ll likely have to pay your lender to do so. Getting the sweet spot of the mortgage rate lock can be tough, especially if you decide to pursue it during your pre-approval process, which is typically long before you find the home you want to close on. Keep this in mind when it comes to timing your securing of a mortgage rate lock.

A Mortgage Rate Lock’s Timeframe Can Cause Stress

The timeframe of a mortgage rate lock can light a fire under your home shopping and buying timeline. Because it expedites this timing, it can add extra stress to your already-full plate. If you get a mortgage rate lock that’s only 30 days and it takes you 60 days to find your home, you can expect to review and revise paperwork and payment with your lender. If you want to avoid this potential headache, weigh the risks and benefits before you choose.

Pro agents in your market are ready to help you find your perfect home. Get in touch with them today on RealEstateAgents.com.