What is an interest rate lock for mortgages?

The interest rate is the cost to borrow money expressed as a yearly percentage. It's based on the principal amount of the loan and is used to calculate the monthly principal and interest payment.

Note: The annual percentage rate (APR) also represents the cost to borrow money as a yearly percentage, but it's a more complete measure of a loan's cost than the interest rate alone. That's because the APR includes the interest rate, plus any discount points, fees, and other credit charges you need to pay to borrow money.

We consider a variety of factors when we determine the interest rate and costs of your loan. The process of reviewing these factors to determine your rate is called "risk-based pricing".

The typical factors we look at include:

• Credit profile: We'll obtain a credit report that shows your current debts and payment history. The report will also include a credit score based on your overall credit history.
• Property type: Investment properties, condominiums, and multifamily homes are generally considered to be higher risks than single-family detached homes.
• Loan-to-value (LTV) ratio: The amount you want to borrow compared to the appraised value of the property. Generally, the lower your LTV ratio, the lower your interest rate and costs.
• Debt-to-income (DTI) ratio: The amount of your mortgage payments and total debt payments compared to your income. A higher DTI ratio may mean higher interest rates and costs.
• Type of loan: Purchase versus refinance, an adjustable rate versus fixed rate, or cash-out refinance versus rate-and-term refinance, may affect overall risk.
• Qualified Income: The amount and type of income documented and verified may help determine your interest rate.
• First-time homebuyer: Borrower meets the first-time homebuyer criteria as defined by applicable programs.

• Closing cost credits: You may be able to finance a portion of your closing costs as part of your loan. This may result in a higher interest rate.
• Discount points: A discount point is paid to obtain a lower interest rate that may reduce your monthly payment amount.
• Asset-Based  Relationship benefit: You may qualify for a closing cost credit or interest rate discount based on eligible new and existing assets with Wells Fargo .
• Builder Spec Lock: For some new construction transactions, a builder may have locked and communicated a specific interest rate available prior to entering into a purchase agreement with you. The rate the builder locked is based on certain loan and credit profile assumptions as of the date the builder locked the rate for that property. “Risk-based” factors listed above will be applied to determine the interest rate and costs of your loan if you choose to use the builder’s lock.
• Additional risk factors: We may also consider other risk factors when determining your interest rate and costs, including previous bankruptcies, foreclosures, or unpaid judgments.

You may be able to lower your interest rate by making changes that lower your risk factors described above. Here are some of the things you may want to consider:

• Putting more money down and lowering the LTV ratio.
• Clearing any errors on your credit report.
• Adding a co-signer with additional income and/or a higher credit score to support the loan. (For this option, you may need to start a new loan application.)
• Changing the number of years of your loan term.
• You also may be able to lower your rate by paying discount points.

Locking your interest rate

• When you lock your rate, we apply a specific range of interest rates to your loan application that are available at the date and time of your rate lock. We hold this range of rates for a designated length of time, known as your “rate lock period.”
• Interest rates may change many times every day. Locking your interest rate means the rate will stay the same from the time of the rate lock until the rate lock expiration date, regardless of changing market conditions.
• Your final interest rate may be higher or lower than what was initially quoted to you if there are changes before your loan closes.

Floating your interest rate

• If you don't lock your interest rate, it can move up or down based on market conditions. This is called "floating" the interest rate.
• You may want to consider floating your interest rate if you're not sure how long it may take before your loan is ready to close, or you believe interest rates will stay the same or go down.
• There is no fee to float your interest rate.

You'll want to make sure your rate lock period is long enough to take you to closing. Some loans require longer rate lock periods.

• The length of your rate lock period may impact the cost of your loan, and some may require a fee upfront.

There are some things you can do to help your loan close on schedule:

• Respond promptly to all requests for information and documentation.
• Contact us right away if there are any changes to your loan application.

Longer rate lock periods may be available for new construction. You'll want to review your options. An extended interest rate lock fee may apply.

• Rate lock fees will vary based on the length of your rate lock period and interest rate chosen.
• We will refund the extended interest rate lock fee if your application is denied.
• If you withdraw your loan application or it is cancelled, the upfront extended rate lock fee may not be refunded unless the application is for a VA loan.

When you lock your interest rate, you're protected from rate increases due to market conditions. If the market improves prior to closing your loan, you can pay a fee and relock at a lower interest rate. This is called "repricing" your loan.

If there are no changes to your loan application and your loan closes on or before the rate lock expiration date, we will close your loan at the locked interest rate.

However, your interest rate may change from the time of your initial rate lock if there are changes to the factors used to determine your interest rate. These kinds of changes may also be called “rate or price adjusters” because they can raise or lower the interest rate on your loan.

Here are some examples of changes that may raise or lower your interest rate:

• The appraised value of the property is different than the value used when you initially locked your loan.
• Your credit profile or qualifying income changes between the time you initially locked your loan and the loan closing.
• Your requested loan amount increases or decreases after you initially locked your loan.
• The type of loan you are applying for changes.
• Your down payment amount changes.
• Some of your income information, such as bonus or overtime income, cannot be verified.

If your interest rate or costs associated with the interest rate change, we will send you an updated Interest Rate Lock Agreement.

If your loan is an adjustable-rate mortgage (ARM), the interest rate disclosed on the Interest Rate Lock Agreement will be the initial interest rate effective until the first change date of your loan. After that, your interest rate may vary in accordance with the change dates and index provided on your mortgage note and loan documents. You'll find additional information about ARMs in the Consumer Handbook on Adjustable-Rate Mortgages (CHARM) that you'll receive when you apply.

If your loan won't close by your rate lock expiration date, you can: 

• Get a rate lock extension — The maximum number of customer-paid rate lock extensions is two (2) per loan and fees apply.
• Unlock the interest rate — You may have an option to unlock your interest rate.
• Cancel the loan application

Please be sure to respond promptly to all requests for information and documentation so we can move closer to closing your loan.

Some common reasons a rate lock extension may be needed include:

• Requested documents are incomplete or delayed.
• The property is not ready to be occupied.
• Request to move closing date beyond the rate lock expiration date.

• If your rate lock is nearing expiration, you may have the option to unlock your rate.
• Unlocking your interest rate means your rate can move up or down based on market conditions and when you relock your rate.
• Your rate needs to be locked prior to your loan closing.

If you cancel your loan application and then decide you want to move forward, please contact us.