Joe Hood is a 70-year-old lawyer in Texas. Back in early September, he froze a 5.99% rate on a 15-year loan. The lock ran 60 days. He didn't expect a better rate to come along. Mortgage rates "were going to go up, period," he told the Journal. He closed on a $275,000 house in San Antonio before the lock ran out.
Since then, the average 30-year fixed rate has floated above 7% for a few weeks. That's the highest in nearly three years. Tuesday's paper prints it at 7.40% in both the Freddie Mac weekly survey and Bankrate's daily average. A year ago Freddie Mac had it at 6.27%. Many forecasters expect rates to stay high at least through the end of the year, Veronica Dagher and Nicholas G. Miller report.
So buyers are locking, and locking longer. The average lock ran 40 days in September, up from 38 a year earlier, by Optimal Blue's count. The 30-day and 45-day locks lost share. The 60-day and 90-day locks gained. A LoanDepot branch manager says interest in long locks is growing, especially among people buying homes that aren't built yet.
What a lock really costs
A "no fee" lock often isn't free. The cost usually hides in a slightly higher rate or smaller lender credits. Get the lock in writing, so you know the rate is fixed and isn't floating. Most lenders want a signed contract and an address first. If closing slips, an extra 30 days might cost half a point. That's $2,500 on a $500,000 loan. A float-down option lets you grab a lower rate if the market drops. Some need a fall of at least 0.25%, and they usually cost extra. And if your finances change before closing, the lock can be voided.
A cheaper rate can still be the worse deal. Michael Borodinsky of LoanDepot gave the Journal an example. Pay $10,000 in points to cut a $500,000 loan from 7.375% to 6.875%. You save about $169 a month. It takes nearly five years just to get the $10,000 back. Move or refinance sooner and you lose. One more trap. A rate rise before closing raises your debt-to-income ratio, and even a small rise can knock you out of the loan.
Our read
This is Housing (M6) with a Time Value of Money (M3) problem inside it. A rate lock is insurance against a rise before closing. Like all insurance, it has a price and a fine print. The points question is the same math we'd run on any upfront cost. Divide what you pay by what you save each month. That's your break-even in months. Then ask yourself, honestly, whether you'll still have this loan by then. Hood's lock worked out because he closed in time while rates stayed high. Nobody knows the next sixty days, and a lock means you don't have to.
The check for this week is for anyone under contract or close to it. Pull out your rate-lock confirmation, or your loan estimate if you haven't locked. Find the expiration date, the extension fee, and whether a float-down is included and what drop it needs. If you're buying a new build, line the expiration up against the builder's real finish date, with slack. If any of that is missing, call the lender this week and ask for it in writing. The policy is easier to read before the storm than during it.