What is an Interest Rate Lock?
Freezing the Rate
When you’re promised a “rate lock” from a lender, it means that you are guaranteed to keep a certain interest rate for a determined period for your application process. This saves you from working through your entire application process and discovering at the end that your interest rate has gone up.
While there can be a choice of rate lock periods (from 15 to 60 days), the longer spans are usually more expensive. The lending institution can agree to hold an interest rate and points for a longer period, like 60 days, but in exchange, the rate (and sometimes points) will be more than with a rate lock of fewer days.
Other Ways to Save on Mortgage Interest
In addition to choosing a shorter rate lock period, there are other ways you may be able to get a competitive rate. The more the down payment, the lower your rate will be, since you will be starting with more equity. You may choose to pay points to bring down your interest rate over the term of the loan, meaning you pay more initially. One strategy that is a good option for many people is to pay points to bring the rate down over the life of the loan. You’ll pay more up front, but you will save money, especially if you don’t refinance early.