Should I lock in the rate on my 30-year mortgage?

While no one can predict future interest rates, locking in interest rates can be a good hedge. One drawback is that unless your rate lock includes a provision known as a “low volatility option,” you can’t change your rate to a lower value if interest rates drop between your application and closing. It’s worth asking your lender what happens if you lock in your rate and then your lender’s 30-year mortgage rates drop.

What is a mortgage rate lock?

The rate lock ensures that the interest rate you are offered is the interest rate you will receive at closing. This protects you from mortgage interest rate fluctuations.

When you get a 30-year mortgage rate quote and make an offer on a home, your lender will usually let you lock in your rate. Depending on the lender and the specific mortgage product you use, general interest rate lock periods can range from 15 to 60 days, and in most cases, you can pay a fee to extend the rate lock if necessary.

How do 30-year mortgage rates affect your mortgage payments?

A lower 30-year mortgage rate will make your monthly mortgage payment smaller.

As an example, if you borrow $400,000, a 6% mortgage rate will make your monthly payment $263 lower than a 7% mortgage rate.

A lower mortgage rate will also lower your overall mortgage costs. Since there are 360 ​​monthly payments on a 30-year mortgage, the $263 monthly difference mentioned in the example above would mean a difference of approximately $95,000 over the 30-year term.