What is a "rate lock period"? How can you make sure your rate is as low as quoted?

A rate lock or a rate commitment is a lender's promise to hold a certain interest rate at a certain and specific cost for you for a specified period of time while your application is processed and undergoing underwriting. This prevents you from going through your whole application process and at the end of it finding out the interest rate has gone up.

A rate lock period can vary in length, and longer ones usually cost more. A lender will agree to "hold" your interest rate and specific cost for a longer period, say 60 days, but in exchange the rate and specific costs are higher than with a shorter rate lock period, for example.

There are many ways besides opting for a shorter rate lock period to get a lower rate, though. A larger down payment will result in a lower interest rate than a smaller one, because you're starting out with more equity.  But that is usually associated with purchasing a home, and a purchase loan.

For a refinance loan, you can pay points to lower your rate over the life of the loan, but that means you pay more upfront. For many people, this makes financial sense since a lower rate means a lower payment.  The savings per month will recuperate the cost of the buy-down upfront.

Historically, when lenders quote a "free loan" or "zero cost loan," they in turn hike the rate up to compensate somehow.  For example, if you qualify for a 5.5% based on your credit, income, asset, and equity profile, but the lender provided you with a 6.5% under the "free loan" or "zero cost loan" premise, you will have received a "free loan" or "zero cost loan" with the expense of a higher rate and a higher payment (5.5% vs. 6.5%).

Finally, the interest rate a lender is willing to offer you depends on your credit score and your debt-to-income ratio. If you have good credit and your income far exceeds your debt obligations, you will qualify for a lower rate.  If you can document assets that show reserves, should there be an illness or problem with employment, you will qualify for a lower rate.  If your home has a good amount of equity, you will qualify for a lower rate.

When dealing with a mortgage transaction, whether it is a purchase loan or a refinance loan, always make sure you ask your advisor if he or she has a Rate Lock Confirmation, which will show you that the rate you are quoted has been locked.  At Freedom Lending, we lock rates for our clients when they reach the lowest peak, which ensures the lowest rate and delivery of the best mortgage product.