A VA loan rate lock is a powerful tool for both Veteran homebuyers and homeowners interested in refinancing. There are pros and cons to locking in your mortgage rate, and knowing when to lock can save you thousands of dollars on your home loan over time.
What is a VA loan rate lock?
A VA loan rate lock protects borrowers while their loan is being processed in the event mortgage rates rise before closing due to market conditions. Rate locks are a guarantee from lenders that their borrower's interest rate will remain fixed for a specified period of time — typically 30 to 60 days.
Benefits of Locking In a VA Loan Rate
VA loan rates are constantly changing based on a variety of market factors, so it's possible that rates available to you increase by the time you close on your home loan. A VA loan rate lock is an agreement between you and your lender, effectively guaranteeing that your rate won't change even if nationwide rates rise before you close your VA home loan.
For example, if your lender locks in your rate at 6% for a period of 45 days, you will get that rate as long as you close on your loan before the lock expires, even if your lender's typical VA rates increase. This could save you thousands of dollars in interest over the life of your mortgage.
Drawbacks to Locking in a VA Loan Rate
VA loan rate locks are an agreement between you and your lender to honor the rate at the time you lock it in. This means you might not be able to secure a lower rate with your lender even if national rates drop, or you might have to pay to do so.
Additionally, your lender may have an additional fee due at closing to lock in a specific rate. If this is the case, your lender must disclose the cost beforehand. If rates increase between your rate lock and closing, you may still save money over the term of your loan.
What if your rate lock expires?
Once your lock expires, you are no longer guaranteed any specific rate and are exposed to fluctuations in the mortgage market. Any fee you agreed to pay in order to lock in your VA loan rate will be voided as well.
Extending Your VA Loan Rate Lock Period
If your closing timeline is delayed, it may be possible to extend the period of your VA loan rate lock. There are typically 3 possible outcomes depending on your VA lender's policies and overall market conditions:
- Your lender won't agree to a rate lock extension
- Your lender will agree to extend your rate lock for free
- Your lender will extend your rate lock for an additional fee
Mortgage rate lock extension fees are typically paid at closing and calculated based on your locked-in rate, current market rates, and loan amount.
Both you and your lender must agree to extend your VA loan rate lock, so it's important to talk to your loan officer as soon as you know that you need an extension.
When to Lock In a VA Loan Rate
Most mortgage lenders will allow borrowers to lock an interest rate once they’re under contract a home. Some might be willing to allow for locks prior to contract acceptance. If you think VA mortgage rates are rising, consider locking in your rate as soon as you are under contract on a home.
Most VA mortgage rate lock periods are 30, 45 or 60 days in length, starting the day you lock in your rate. Your VA lender must be willing to agree to a mortgage rate lock period long enough to close on your loan before the lock expires, and longer rate locks could come with higher fees depending on the market.
About Rate Lock Periods
A VA mortgage rate lock is usually tied to a specific length of time and has an associated expiration date. VA lenders may agree to rate lock periods ranging from 30 to 60 days, but guidelines and associated fees vary.
Talk to your loan officer before locking in your rate to see when a VA loan rate lock makes sense for you. No one can predict the future with 100% accuracy, but your lender can crunch the numbers to show you your options.
What to Consider Before Locking In a VA Loan Rate
VA loan rate locks are powerful tools, but there are a few potential drawbacks to consider before you lock in your mortgage rate.
First, know that rate locks protect you from market changes, but your lender can void the rate lock if credit or financial factors change before closing. Factors that can lead to your VA loan rate to be increased despite locking in your rate include:
- Significant changes in your credit score
- Significant debt-to-income ratio changes
- Change in the amount of money you plan to put down at closing
These events aren't common, but be aware that a rate lock doesn't mean you don't need to watch your credit before closing. Whether you lock in your VA loan rate or not, it's smart to maintain a steady financial profile during the home loan process.
Second, it's important to note that a rate lock only applies to the lender you worked with to lock in your rate. You can lock in mortgage rates with multiple lenders, but each rate lock could differ. Rate locks are an agreement between you and an individual VA lender.
Locking in your rate with a lender doesn't obligate you to work with them. If rates change significantly, another lender may be able to offer you a lower rate. However, switching lenders late in the homebuying process could be risky.
Cost to Lock In Your VA Loan Rate
There is no set cost associated with VA loan rate locks. Fees associated with mortgage rate locks can vary based on the following:
- Lender
- Market conditions
- Rate lock period
- Interest rate you're locking in
- Your credit and financial history
Even if your interest rate lock doesn't come with a fee due at closing, your lender may have calculated the cost of locking your rate and factored it into the interest rate you're offered.
Additional fees may apply if you need an extension on your rate lock too, so talk to your lender about your options.
Alternatives to Locking In Your Loan Rate
Remember, you don't have to lock in your VA mortgage rate at all. If market conditions are moving in your favor and rates are likely to drop, it may be smart to consider other strategies.
Floating VA Loan Rates
Instead of locking a rate right after getting under contract, you can allow the mortgage rate to "float" — meaning that at the time of closing, your VA loan rate and APR may be higher or lower than the initial rate you were offered. Floating allows you to take advantage of market changes that could decrease rates before your closing date.
What is a VA float-down lock?
Some VA loan lenders may offer a "float-down lock." A float-down lock is a guarantee from your lender that your interest rate won't rise, but you'll have the opportunity to take advantage of lower rates if they become available. It's sort of like the best of both worlds, but there's usually a catch.
Float-down interest rate locks often come with additional fees due at closing. You're essentially paying for the flexibility of a floating rate along with the safety of a traditional rate lock.
Some lenders' float-down locks won't engage unless rates decrease significantly. For example, your float-down lock may require a decline of at least half a percent to allow you to take advantage of lower rates. For example, if you were locked into a 6.5% interest rate and rates fell to 6.2%, you wouldn't be able to take advantage of the rate savings.
Rate Locks for VA ARM Loans
Many lenders offer loan rate locks for VA adjustable-rate mortgages (ARMs). Generally speaking, VA ARM rate locks work the same as with fixed-rate VA mortgages. However, after closing your rate can increase as with any traditional adjustable-rate mortgage. Your rate lock only protects you from rate increases prior to your closing date and before your lock expires.
Frequently Asked Questions
Can you change VA lenders after locking your rate?
Yes, locking your VA mortgage rate with one lender doesn't obligate you to work with that lender. You still have the opportunity to work with other lenders and lock in rates with other lenders.
Just be aware that switching lenders late in the homebuying process has the potential to delay your closing date and will likely require more of your time in the process.
Can you return to a floating interest rate after locking?
Terms vary from lender to lender. It's possible your lender would allow you to void your VA loan lock to return to a floating rate if special circumstances arise.
What happens if a VA loan requires a long rate lock period?
Talk with your lender if you need an exception to traditional rate lock periods lasting between 30 and 60 days. Some lenders may be willing to agree to a longer rate lock or extend your existing lock, depending on your unique situation.
What if rates go down after you lock in your VA loan rate?
If rates drop before your house closes, you might be able to get a lower rate by paying an additional fee and locking again. This is known as "repricing."
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