Understanding Mortgage Rate lock and closing cost policies:

What is a "rate lock period"? How can you make sure your home loan rate is low? How are costs and mortgage rates handled?

A rate lock or a rate commitment is a mortgage lender's promise to hold a certain mortgage rate for you, at a specified cost, for a specified period of time while your home loan application is processed.

A rate lock period can vary in length, and longer ones usually cost more. Mortgage lenders will agree to protect your mortgage rate for a longer period, say 60 days, but in exchange the cost will be higher than for a shorter rate lock period.

There are many ways besides opting for a shorter rate lock period to get a lower home loan rate, however. A larger down payment will result in a lower interest rate than a smaller one, because you're starting out with more equity. You can pay points to lower your mortgage rate over the life of the home loan, but that means you pay more up front. For many people, this makes sense. For others, it is a mistake.

Closing costs are fees incurred by the consumer, and are required to close the home loan. How the costs are paid should be a consideration of great importance. There are many choices. Many people pay home loan closing costs with a check at closing, but many finance their closing costs. In some situations, we can pay for your closing costs, but this generally means that your mortgage rate will be a little higher. Paying closing costs when the home loan closes will reduce your mortgage rate.

Finally, the mortgage rate a lender is willing to offer you will depend on your credit score and your income-to-debt ratio. If you have good credit and your income far exceeds your debt obligations, you will also qualify for a lower mortgage rate.