Locking your Interest Rate
When
you're looking for a
mortgage, you're likely to
shop among lenders for the
most favorable
interest rate,
and the lowest points
and other up-front charges.
When you find the most
favorable terms and the
lender that you want, you'll
apply to that lender.
Lock-ins are a way to
ensure that at
settlement,
what you requested from your
lender is what you'll get.
What is a Lock-In?
A lock-in, also called a
rate-lock or rate
commitment, is a lender's
promise to hold a certain
interest rate and a certain
number of points for you,
usually for a specified
period of time, while your
loan application is
processed.
Depending upon the lender,
you may be able to lock in
your interest rate and
points when:
you
file your application;
during
processing of the loan;
when
the loan is approved; or
later.
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Pro |
Con |
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Lock-Ins protect you
against increases
while your
application is
processed. |
A locked-in rate may
prevent you from
taking advantage of
price decreases
during this period. |
Will Your Lock-In Be in
Writing?
It is wise to obtain
written, rather than verbal,
lock-in agreements to:
fully
understand how your lender's
lock-ins work; and
have a
tangible record of your
arrangements with the lender
in the event of a dispute.
|
TIP: You
should also obtain a
blank copy of a
lender's lock-in
form to read
carefully before you
apply for a loan. If
possible, show the
lock-in form to a
lawyer or real
estate professional. |
Will You Be Charged for a
Lock-In?
Lenders may charge you a
lock-in fee that may or may
not be refundable if you do
not close your loan. The
amount of the fee and how it
is charged will vary among
lenders and may depend upon
the length of the lock-in
period.
How Long Are Lock-Ins
Valid?
Lock-ins of 30 to 60 days
are common but lock-in time
periods may range from 7 to
120 days. Usually, the
longer the period, the
greater the fee.
Before deciding on the
length of your lock-in:
ask
your lender to estimate (in
writing, if possible) the
time needed to process your
loan;
factor
in any delays that might
impact settlement
(construction issues, etc.);
and
ask for
a lock-in with as few
contingencies as possible.
What Happens if the
Lock-In Period Expires?
If your lock-in period
expires, you might lose the
interest rate and the number
of points you had locked in.
Most lenders will then offer
the loan based on the
prevailing interest rate and
points, which may now be
higher due to market
conditions.
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