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Your Mortgage
Loan:
Locking-in the Interest Rate
When shopping for a
mortgage, the lender may give you a quote for
the mortgage interest rate and points
(additional fees charged by the lender usually
paid at closing by the borrower). These only
represent terms available at the time of the
quote. They may not be available by the closing
date (which may be weeks or months in the
future). To ensure the rate and points are the
same at closing as they are when quoted, you'll
need to lock-in the interest rate (also known as
a rate lock or rate commitment).
Obtain a Written
Rate-Lock Agreement
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"Floating"
the Rate
Buyers opt to
float the loan when they believe interest rates
will drop after their loan application date and
prior to closing. The risk is that rather than
dropping, interest rates rise, increasing the
mortgage
payment. "Floating" is not recommended.
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Most lenders will commit,
in writing, to a mortgage interest rate for a
specified time period while your loan
application is processed - this is known as
"locking-in" the rate.
If you elect to lock-in an
interest rate, it is best to deal with a lender
who provides a written lock-in agreement. Be
sure to read this agreement carefully, some
lock-in agreements become void due to actions
beyond your control - such as a change in the
maximum rate for VA-guaranteed loans.
Lock-in Options
The following lock-in
options are common among lending institutions.
Be sure to ask the mortgage lenders you are
considering which lock-in options they
offer.
Lock-in interest rates
and points.
This will give you a
clear understanding of how much your mortgage
will cost. Neither your interest rate nor points
increase during the lock-in period. This
protects you against rising market
conditions.
Lock-in interest rates
and floating points.
Your interest
rate is locked-in and will not change for the
lock-in period, while your points may rise and
fall with market conditions. With this option,
your lender may allow you to lock-in the points
at the current market condition some time
between submitting the loan application and
closing.
Floating interest rates
and floating points.
This gives
you the option to lock-in the interest rate at
some time between submitting the loan
application and closing. This puts you at risk
if interest rates and points rise and may not be
best for a homebuyer with a tight
budget.
The Cost of Locking-in
the Rate
It is not unusual for a
lender to charge a fee for locking-in an
interest rate and points. This fee may vary
depending on the amount of time you want to
lock-in the rate (the lock-in period).
The fee may be charged when
you lock-in the rate (and is rarely refundable
if you withdraw your application, if your credit
is denied or if you do not close on the loan) or
it may be included in your closing costs. The
amount of the fee and when it is charged will
vary among lenders.
The Lock-in
Period
Most lenders will offer
lock-in periods of 30-60 days. Some lenders may
only have short lock-in periods. And still
others may offer a longer lock-in period (expect
higher fees for longer lock-in periods).
The lock-in period should
be long enough for the loan approval process and
to allow for any other contingencies that may
delay closing.
The Lock-in Expiration
Date
If unexpected circumstances
prevent the loan from settling prior to the last
day of the lock-in period (whether caused by you
or others in the process - including the
lender), you lose the interest rate and points
that were locked. Prevailing interest rates and
points are usually charged under these
circumstances.
Be sure to ask your lender
before you lock-in what interest rates
and points will be charged if the loan is not
closed before the lock-in period
expires.
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