If you are buying a home, you probably have a good idea of the importance of your interest rate. Locking it down can mean setting the rate for a limited time. Read on to find out what you should know about locking down your interest rate.

Why Locking the Rate Matters

Interest rates fluctuate all the time. The rate the lender offers when you apply for your loan could be different than the rate at the time you sign the closing papers. When you lock the rate, the lender agrees to honor that rate even if it rises later. As the buyer, though, you are also taking a risk that the rate will be lower. Some lenders do offer buyers an option called a "float down" that will lower your rate partially if that happens.

What Else to Know About Interest Locks

The time that your rate is locked can vary. In most cases, the longer the amount of time your rate stays locked the better. That is because some buyers experience issues during the escrow or due diligence period that can delay the closing. For instance, if the seller has agreed to make a repair on the home, the closing could be delayed if the work has not been completed. The amount of time the rate stays locked can be 30, 60, or even 90 days depending on the terms of your mortgage loan agreement and other factors.

Even a tiny fluctuation in the interest rate can create a domino effect on your financial picture. Almost every aspect of your loan is based on the interest rate. If your loan has been calculated to call for the payment of a certain mortgage amount each month, a rate difference could make that loan suddenly unaffordable for the buyer when it increases their debt-to-income ratio. Even a few dollars difference each month on the loan payment could also affect how much the buyer ends up paying for the loan over the life of the loan by a surprisingly large amount.

Some lenders allow buyers to lock in a rate for a given period and then to add some time by paying a fee. If your rate lock period is approaching the end but the closing may be delayed, speak to your lender about extending the rate. If the interest rate has dropped since you applied for the loan, however, you might not be worried about the expiring rate.

Don't let that great rate expire. Speak to a house loans service about interest rates today.