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What Does It Mean To “Lock In” A Rate?

Lock in a mortgage rateA rate lock is a lender’s promise to keep a specific interest rate on hold for you and a specific number of points for a period of time while your loan application is being processed. This prevents you from going through the trouble of the whole application process and at the end; finding out the interest rate has gone up.

A rate lock period can vary in its length.  Longer rate lock periods can cost more. A lender will agree to “hold” your interest rate and points for a longer period, for instance 45 days, but in exchange the rate and possibly the points too are higher than the interest rate with a shorter rate lock period.

There are many ways besides selecting a shorter rate lock period, to get a lower rate. A larger down payment will result in a lower interest rate because you’re starting out with more equity. Or, you can pay more points to lower your rate over the life of the loan, which means you pay more up front. For most people, this makes good sense and is a good bargain.

Closing costs are fees paid by the lender, which the lender in turn charges you, the borrower, to close the loan. For the most part, people pay closing costs when they sign on the dotted line.  However, you can  finance closing costs. Paying closing costs when the loan actually closes will reduce your interest rate.

Finally, the interest rate a lender is willing to offer you depends on your credit score and your debt-to-income ratio. If your credit is good and your income exceeds your debt by a good amount, you will qualify for a lower rate.