When Should you lock in an interest rate?

I hear this question from my clients all of the time. My answer to them is that they should lock in as soon as they get a fully executed sales contract. That being said, your best rates will come on a 30 day lock, and some contracts these days are pushing closings out for 45 and even 60 days. What do you do then?

You need to bite the bullet and take a slightly higher rate for the added security of the longer rate lock. The reason I suggest this is two fold:

1. You can always float down, or renegotiate, your interest rate before you close. Make sure your lender offers a float down option on your rate locks. There may be a small fee for doing this, but locking in your rate protects you by giving you a worst case scenario. Keep in mind you will only be able to float down if rates have remained stable or have moved lower. This is getting increasingly doubtful in our current market.

2. We are no doubt about to enter a rising rate environment. If you have a 45 or 60 day escrow and hold off locking until you get within 30 or even 15 days of close you are risking a higher rate then if you had done an extended lock. The markets can adjust fast, and by the time your loan officer gets in touch with you to let you know rates are going up, you could end up very disappointed. If you have high debt to income ratios, a higher rate can blow your loan, and at a minimum the loan will need to be processed through underwriting again at the higher rate, adding more time to the process.

I hope this information helps. Check back soon!