How to Lock in Your Mortgage Rate
When you make an application for a mortgage, the rate you are given will be the rate for that day. These terms may not be the ones available to you at settlement, weeks or months later.
But banks today frequently offer their customers a lock in period for their loan at the time of application. They know that the time between deciding on shopping for a home and actually finding and closing on it may take some time. The rate of interest is an important factor in the affordability of a home, so this can be an important point. Locking in a rate for a length of time often proves to be a good idea for a borrower. Lenders offer lock in periods for both rates or points.
You should be able to lock in the interest rate and points either as you apply for the loan, during the loan processing or when the loan is approved.
If the bank offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will be. You then have the right to borrow at 5.5% even if you are not able to close on the loan for the next thirty days. This is a normal lock in period, and a lot of lenders offer it to attract customers, and are willing to take the risk for a short period of time. Longer periods are also available, but usually are priced more, since lenders are not going to risk rates moving against them for a longer period without some compensation for the risk.
One of the problems of a lock in rate, though, is that if rates in general decrease, you may be hit with the higher rate, unless there you have an opt out clause. This has to be done as you sign up for the lock in rate.
If you don?t close on your mortgage during the lock in period, the guarantee runs out, and you will be quoted a new rate at the current rates. If rates have not changed, a lender may be willing to issue a new guarantee at the same rate.
There are combinations in terms of lock in periods.
Locked in Rate, locked in points. Both interest rate and number of points are fixed.
Rate is locked, points are not. The underlying rate is fixed for the period, but the bank retains the right to increase the points. You may have to pay additional points to get the guaranteed rate.
If interest rates are changing a great deal, it is probably a good idea to ask your banker about lock in periods.
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