There’s no easy answer. The best choice will vary in different markets and different lenders. Borrowers willing to gamble might forgo the lock-in process in hopes rates will fall before the loan is final. Others want the peace of mind a lock-in provides.
With rates fluctuating only small amounts week by week, it will pay to look at the actual dollars involved rather than to fixate on saving a fraction of a percentage point.
To back up for a second, locking in means getting the lender to commit to a specific interest rate if the loan is approved within a set period. Many lenders charge nothing to guarantee a rate for 30 to 60 days. To lock in for 90 or 120 days, the lender may charge a fee, typically 0.25% to 0.5% of the loan amount, or $750 to $1,500 for a $300,000 loan. A lock may or may not include the number of points the borrower must pay.Locking in is especially important when rates are likely to rise. But it can backfire on the borrower if rates subsequently fall.
Currently, the rates on the most desirable form of loan, the 30-year fixed-rate mortgage, average about 5%, according to the BankingMyWay.com Survey. That is such a low rate it’s very unlikely it will drop significantly. Over the long term, the odds favor rates going up rather than down. But rates have been relatively stable recently, and the Federal Reserve is working to keep them low, so it doesn’t seem likely rates will rise significantly over the next 30 to 60 days, the time it typically takes to get a mortgage approved.
On the other hand, even a small rate hike can cost a lot over the years. A $300,000 loan charging 5% would cost $1,610.46 a month, according to the Mortgage Loan Calculator. At 5.25%, it would cost $1,656.61. Over 30 years the difference would amount to $16,614.
It is not at all uncommon for rates to change by 0.25 percentage points over 60 days, and rates were just shy of 6% as recently as June.