Who doesn’t love getting the best deal? We would say no one. Of course you want to save money on your monthly mortgage payment! The biggest factor to save you money on your home loan once you’ve selected where to buy or build is your interest rate.

But interest rates change daily, so how can you be sure what you’ll pay when everything is said and done? That would be through a mortgage rate lock. There are standard rate locks, and then there are extended rate locks. How do you know which one you need and how it works? We’ve got you covered.

How Do Mortgage Rate Locks Work?

While you’re shopping for a home or building one, you also apply for a mortgage and work through the loan approval process. Your loan officer will generate a loan estimate. To ensure you have the interest rate included in that estimate at your closing, you must lock in your rate.

Our standard rate locks at First Heritage Mortgage last for 60 days. But with the current housing market, finding a house and getting your offer accepted can take longer than that. And with the supply chain issues affecting new home construction, you’ll be well beyond the 60-day lock period once construction is complete.

What Is An Extended Rate Lock?

You’re probably wondering, “What can I do to ensure I get this great rate beyond the 60-day period then?” And the answer to that question is what we’re here to talk about – extended rate locks.

The term extended rate lock simply means that you’re locking in the interest rate on your loan beyond the standard period your lender offers. At FHM, our standard rate locks last as long as 60 days. Beyond that, your loan officer will secure your rate with our extended rate lock program, which can lock in your rate from 80 days all the way up to 350 days.

When Do You Need an Extended Rate Lock?

If you’re building a new home or need more time to find the right place and get your real estate deal closed, you’ll want to learn about extended rate locks.

The average time it took to build a home in 2020 was 6.8 months. That average has crept up by a couple of months because of recent supply chain issues. We’ve all experienced the unpredictability of financial markets over the past few years. By locking in your rate for up to 350 days, you’ll have peace of mind knowing that your interest rate is guaranteed.

Beyond new construction, extended rate locks are also great options for when it’s taking longer than 60 days to find a home, get your offer accepted, and close your loan. In today’s housing market, it’s not unusual for many buyers to compete to buy the same house. This seller’s market can mean a longer shopping period, and without an extended rate lock, you could end up paying more on your rate and, ultimately, your monthly mortgage payment.

What Are The Costs of Extended Rate Locks?

Saving you money and giving you longer to close your loan might sound too good to be true. But this is a rare time when you hear a really good deal, and it actually is a really good deal. Some of our loan programs include an extended rate lock, meaning there are no upfront fees to secure the best rate for you. Even with our programs that don’t include an extended rate lock, they usually only begin to have fees associated with them after 65 days.

Don’t you love when the good news just keeps getting better? Our extended rate locks are available with a wide variety of loan programs, including FHA, VA (Veterans Affairs), Conforming Fixed, Conforming ARMs, High Balance Conforming, and Jumbo loans.

Rate lock fees will vary based on the loan program you’re financing with. Your loan officer will be the best person to help you find the right option for your situation and to provide you with a detailed breakdown of any fees associated with your lock.

Can I Float Down My Rate if Rates Drop During My Extended Rate Lock Period?

If you end up in the fortunate scenario of closing on your loan with rates lower than when you locked yours in with your extended rate lock, you can take advantage of a one-time float down. This option allows you to “float down” your guaranteed rate to the current market rate. More simply, you are guaranteed not to pay more than today’s rate but can take advantage of a lower rate tomorrow if that happens.

If rates are trending down as you get closer to your new home construction or closing date, you should speak with your loan officer about the option to float down your rate. This usually takes place only after your builder has set a firm closing date, you’re within 60 days of closing, and underwriting has cleared all of your loan documents.

We’ve covered the basics of how an extended rate lock works. Now you know how an extended rate lock can help you secure the best interest rate and provide predictability in your mortgage payment even when your closing date is  almost a year away. To learn more or discuss the best loan options for your home buying needs, reach out to our team today.