Should I lock in my mortgage rate for 30 years?

Although no one can predict future interest rates, a rate lock can be a good hedge. One drawback is that unless your rate lock includes a provision known as a “floating option,” you cannot change your rate to a lower rate if interest rates drop between your request and closing. It’s worth asking your lender what happens if you lock in your rate and their 30-year mortgage rates drop.

What is a mortgage rate lock?

A rate lock guarantees that the interest rate you are offered will be the interest rate you actually get at closing. This protects you from fluctuations in mortgage interest rates.

Once you get a 30-year mortgage rate quote and make an offer on a home, your lender will usually allow you to lock in your rate. Depending on the lender and the particular mortgage product you use, common rate lock periods can vary from 15 to 60 days, and in many cases you may pay a fee to extend the rate lock if necessary.

How 30-year mortgage rates affect your mortgage payments

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

For example, if you borrow $400,000, a mortgage rate of 6% will reduce your monthly payment by $263 per month compared to a mortgage rate of 7%.

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