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 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.

• 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 Discount: You may qualify for a rate discount based on the balance of your eligible assets at Wells Fargo Bank, N.A. and/or Wells Fargo Advisors. Not all assets qualify. Discount not eligible with FHA and VA loans. Refer to your Customer Rate Discount Disclosure in your initial disclosure package for additional details on the Asset-Based Relationship Discount.
• 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 and disbursement of funds. Some loans require longer rate lock periods.

• It is important to choose a rate lock period that makes sense for your loan.
• If your rate lock will expire prior to closing and disbursement of funds, a rate lock extension will be required to close your loan. We will extend your rate lock at no cost to you.
• The length of your rate lock period may impact the cost of your loan, and some may require a fee up front.

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 required for things like new construction or a condo that needs board approval. An extended 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 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.

We'll let you know if your situation requires a longer than normal rate lock period and if any rate lock fees apply. If you choose a longer rate lock period option, you will receive a separate disclosure with detailed information.

When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.

Note: If you're using a Bond program, contact your home mortgage consultant to see if the bond program you've chosen allows you to modify your rate.

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 rate lock will expire prior to closing and disbursement of funds, a rate lock extension will be required to close your loan. We will extend your rate lock at no cost to you. 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:

• Information you provide us is incomplete or delayed.
• The property is not ready to be occupied.
• There are issues clearing the title.

If your closing date becomes unknown or uncertain and you need more time to close the loan, you may be able to return to float by unlocking your rate.

You may cancel/withdraw your loan application at any time.

If you’re using a Bond program and your loan will not close by the rate lock expiration date, contact your home mortgage consultant to see if the bond program you’ve chosen allows your rate to be extended, or you may cancel/withdraw your loan.

If your closing date becomes unknown or uncertain and it won’t occur on or before the rate lock expiration date, you may have the option to unlock and float your rate.

Some common reasons for an unknown or uncertain closing date may include circumstances such as:

• Hardship (e.g., lengthy jury duty)
• Departure home sale falls through
• Legal action pending on the purchase property title

You can relock in 14 calendar days or less at your original rate and loan terms.

• If you relock after 14 calendar days, you’ll receive a new current market interest rate and rate lock expiration date.

There is no fee to return your loan to float.

If you believe you have an unknown or uncertain closing date, please contact your home mortgage consultant or private mortgage banker.

Note: If you're using a Bond program and your rate lock expires, returning to float is not available. Contact your home mortgage consultant with any questions.

If you no longer want to pursue a loan with us, you may cancel/withdraw your loan application at any time.

If you cancel/withdraw your loan application and then decide you want to move forward:

• Within 14 calendar days from the date we process your cancellation/withdrawal request: Your application may be eligible for reactivation at no cost to you. In this case, you will receive your original rate, loan terms, and rate lock expiration date. Contact your home mortgage consultant or private mortgage banker for information regarding reactivation criteria.
• After 14 calendar days: You will need to start a new application and obtain a new rate lock at current market rates.