Lock-in without looking back

More Articles:

*When is the right time to lock?
*What if my lock-in period expires?
*Should I get my lock-in in writing?

The complete guide to getting a commitment

Cindy Waxer

Cindy Waxer writes about technology and personal finance for TIME, Computerworld, Fortune Small Business, eWeek, and CIO, as well as clients including McAfee, Microsoft, and eBay.

Sally Copeland is not the gambling type. So when the 33-year-old, first-time home-buying Iowa native was presented with a favorable interest rate that met her financial criteria, Copeland asked her lender to give her what countless ex-boyfriends wouldn't: a commitment.

"When you lock-in a rate, you safeguard against fluctuations, from the time a lock is confirmed to the day it expires."

A rate commitment, more commonly known as a rate lock, is a lender's guarantee to hold a certain interest rate for you, including the points required for that rate, for an agreed upon period of time while your loan application is being processed. Since processing can take as little as several weeks to more than a month, there’s some risk that a once-reasonable interest rate can increase during in that time. That’s where a rate commitment comes in: By electing to lock-in a rate, you can safeguard against fluctuations, from the time a lock is confirmed to the day it expires.

Of course, not all homebuyers share Copeland's intolerance for risk. That's why lenders also allow consumers to 'float' an interest rate by actively opting not to lock in. Sure, floating a rate opens you up to rate fluctuations, but it also lets you take advantage of interest rate decreases, and avoid the fees that accompany a lock-in agreement—fees that vary among lenders.

While it's true that a nominal fee is a small price to pay for a guaranteed rate, there are as many questions surrounding lock-ins as there are incentives. For one thing, there are no hard-and-fast rules regarding when a consumer should lock in. You can't say, "Always lock on a Friday afternoon." Indeed, while most mortgage experts will tell you speed is of the essence once you have decided to lock your rate, there are no advantages to be had from timing a lock-in.

Nor can consumers expect to find guidance in economic trends and developments. Analyzing the latest fluctuations in Treasury bonds may sharpen your skills as an armchair economist, but it may not help you make the best lock-in decision. Instead, ask yourself what the rate you're being offered means for your financial future and freedom.

Then there's the risk of lock failure—what happens when your lock expires before the loan has been fully processed. It's not that uncommon, especially if there are unexpected delays arising from incomplete documentation. Either way, the consumer loses out on a promised rate, unless the lender permits the lock-in period to be extended, usually for a fee.

That's all the more reason to look beyond numbers when weighing your borrowing options. Shop for the best loan officer, not just the best rates, say most mortgage experts. Don't choose your mortgage because of a flyer in the mail. You need to have a working relationship with a lender—and that should be someone you can really trust.