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Real Estate Matters: How long do interest rate locks last?

By Ilyce Glink and Samuel J. Tamkin, Tribune Content Agency on

Q: I am pretty sure I already know the answer to this question but here it goes anyway. My wife and I plan to move into a different house/condo in two years. Is it possible to lock into a rate now that would hold for a couple years? What is the maximum time limit to hold a rate lock?

A: That's a great idea! We wish we could lock in these interest rates for two years or even more, but most lenders' interest rate locks are for 30, 45, 60 or 90 days. Frequently, you get the lowest interest rate with the shortest rate lock. You can call around and see what lenders in your area are offering, but it's unlikely that you'll find any lender willing to give you a rate lock that extends past those days.

In some new-construction scenarios, home builders will work with lenders to offer their home buyers a longer rate lock period. While the costs for the longer term rate lock may be absorbed by the builder, that builder then knows that the buyer has been approved for a loan and that the loan interest rate is somewhat certain. This certainty would mean that the buyer should be able to close on the loan without issues.

When new-construction buyers sign a contract for a home, the home might not be delivered for a year or so. That home buyer may be able to afford the home given today's interest rates but not tomorrow's if rates go sky high. Typically, builders get a preferred lender to offer a type of loan product that would allow the rates to go up a tad but would give the home buyer the benefit of a lower interest rate if rates drop down.

But we haven't seen a two-year rate lock, even in a new home building scenario. Having said that, some lenders will allow you to buy a rate lock so you might find a lender willing to give a 365 day rate lock or even longer, but that lender will charge you a fee (sometimes it's significant) to lock that rate.

From your standpoint, you have to determine whether the cost of locking the rate is worth it. We can't tell you what a lender would charge for the lock, but we know that the longer you want to lock in the rate the higher the fee. And, if you add that to the annual cost of the mortgage, it's going to push that super-low rate a lot higher.

Here's the thing: If you look all the way back to 1993, when mortgage interest rates fell below 6% for the first time since World War II, we've had incredibly low interest rates. Over the past 10 years, mortgage interest rates have barely been above 4%. The last time they were over 5%, was 2010, the height of the Great Recession, and they quickly fell below that, only to nearly touch 5% in 2019, according to the Federal Reserve Bank of St. Louis.

In other words, it's likely that interest rates will still be low in two years, and if they're not, you can refinance when they fall again. That's the smart move.


Important news!

This week, the government took steps to try to ensure millions of Americans wouldn't lose their homes, cars and credit due to the Coronavirus pandemic.

Fannie Mae and Freddie Mac, which back roughly 70% of the U.S. mortgage market, have stated that they will provide mortgage forbearance of up to 12 months, waive penalties and late fees, and suspend the reporting of delinquencies (non-payment of mortgage payments) as part of their response to the COVID-19 crisis. In addition, they're halting foreclosure and evictions through at least May 17, 2020, and are offering loan modifications that either lower or keep payments the same. Find out more details at FannieMae.com and FreddieMac.com. (You can find out whether the two companies back your mortgage there as well.)

Ginnie Mae backs mortgages issued by FHA, the Veteran's Administration and USDA. As we were writing this, it is unclear what sort of help will be offered to homeowners, so check the GinnieMae.gov website for details.

Finally, for those borrowers who also have federal student loans, the Department of Education will stop wage garnishments and collection actions and will refund $1.8 billion that has been collected to student loan borrowers. In addition, the government has set student loan interest rates to 0% and will allow borrowers to opt-in to administrative forbearance for 60 days without penalty or accruing interest. Find out more at https://studentaid.gov/announcements-events/coronavirus.


(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)



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