When to request a mortgage rate freeze?

Some mortgage lenders allow you to lock in rates as soon as your mortgage has been pre-approved, while others will not offer mortgage lock-in until you present a contract to purchase a home.

Unless rates are extraordinarily low, the best time to lock in a rate is after you have signed a purchase agreement, not the second your loan application is approved. This is because you want your lender to have enough time to process your loan before the rate freeze period expires. Ask your lender how long it normally takes to close your mortgage, and allow extra days for unforeseen circumstances – this will help you determine how long a rate freeze you need.

How much does a rate freeze cost?

Many mortgage lenders do not charge for mortgage rate freeze or rate extensions. Of those that do, you typically consider 0.25% to 0.50% of the total loan amount for a rate freeze (60 days or less), and between 0.06% and 0.375% for an extension. This means that if you borrow $ 300,000, it will cost you between $ 750 and $ 1,500 for the initial foreclosure and between $ 180 and $ 1,125 for an extension, payable at closing.

If you find a lender who offers everything you are looking for, don’t let the fact that they charge a mortgage rate freeze put you off as a borrower. Here’s why: A mortgage rate freeze can save you thousands of dollars over the life of a loan and pay off quickly. Also, a mortgage lender who offers automatic mortgage rate foreclosure will often factor that cost into the loan in a different way, meaning your initial rate or closing costs will be higher.

Say you want to borrow $ 300,000 over 30 years and take out a mortgage at 4% interest. Your monthly payment for principal and interest would be $ 1,432. Now imagine that you didn’t lock in the interest rate early enough and at the time of closing the rate is 4.5%. This small difference means your principal and interest payments would be $ 1,520 per month, or $ 88 more each month. By the time you pay off the mortgage in 30 years, you will have paid an additional $ 31,680.

Benefits of a mortgage rate freeze

Rate locks are popular with buyers for a reason. Here are some benefits of locking in your rate early as a borrower:

  • You are confident about your interest rate and are in a better position to determine how much home you can afford.
  • With a locked-in rate, you can focus on what you need to do to get to the close, rather than worrying about what happens with interest rates or getting stuck with a higher rate if your closing is. delayed.
  • You can usually extend the low rate longer if needed.

Disadvantages of freezing mortgage rates

Rate locks can be useful, but they are not perfect. Here are two of the reasons buyers think twice before locking in an interest rate:

  • Rates can change from hour to hour, and you have no way of knowing if the rates will go down until your loan closes.
  • If interest rates go down, you’re stuck with the rate you locked in – you can’t get a lower rate. The exception is if the original rate foreclosure has a written “float” provision to cover such a situation. If a lender provides a free float provision, you can expect to pay more for the foreclosure rate.

When it’s time to lock in your mortgage rate, figure out how long you’ll likely need the lock in place. Then, watch the deadlines so that your foreclosure does not expire before your mortgage closes.