Some of the benefits and risks of locking rates are as follows:
Lock-ins protect against rising interest rates and potentially higher payments.
Lock-ins limit a borrower’s ability to take advantage of falling interest rates.
Lock-ins protect against a borrower initially qualifying for a loan and then being denied because higher interest rates caused higher payments, pushing the borrower over the debt limits.
Lock-ins can have additional lender fees based on the length of the lock-in. The longer the time period, the higher the fees. Borrowers should factor in natural delays and select a lock-in period accordingly.
Lock-ins can be set up with a locked rate and locked points, locked rates and floating points, or floating rates and floating points, which gives the borrower the ability to take advantage of falling rates.
Lock-ins are effective for a set period of time. If the lock expires before the loan closes, rates will be charged at the current market rate.
Lock-in periods are usually 30-60 days, which gives the lender time to complete the loan processing. Some lenders offer longer lock-in periods, even up to 120 days.