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How To Save Money By Choosing A Better Closing Date

When a loan officer locks a mortgage rate for you, that rate is tied to an expiration date. 

The expiration may be 30 days, or 75 days, or 90 days, or more into the future, but so long as the rate is "locked", the bank is committed to delivering that rate to you at your closing.

What most people don't know is that the longer the rate lock, in general, the higher the interest rate and/or fees and that's because banks can't predict the future. 

The more time that passes between today and your rate lock expiration, the more likely it is that market conditions will have changed from where they are today, and the bank will be "below market" on your individual loan. 

Therefore, banks compensate for this "time risk" by increasing their rate of return (i.e. your mortgage rate), and/or charging "extended lock fees" to borrowers. 

To lenders, rate locks represents a huge risk -- what if its prediction of the future is wrong?

Rate locks vary from lender to lender, but in general, they move in 15-day increments -- 15-day, 30-day, 45-day, et cetera.  After 90-days, rate locks tend to move in 30-day increments.  The shorter the time, generally, the lower the rate and/or fees.

So, when you're negotiating a new contract on a home, it makes more sense set a closing date 30 days in the future as opposed to 40 days; 45 days as opposed to 46.  By keeping your rate lock commitment days as low as possible, you'll help save money long-term. 

There's no sense in paying for extra rate lock days if you don't need them.