The Cost of Your Mortgage Loan - Locking-in-the 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). This only represents the terms available at the time of the quote. They may not be available at the time of the closing date (which may be weeks or months away). To ensure that the rate and points are the same at closing as they are when quoted, you will need to lock-in the interest rate (also known as a rate lock or rate commitment).

Here are a few pointers to consider when locking-in the rate:

1. Obtain a Written Agreement
Most lenders will commit, in writing, to a mortgage interest rate for a specified period of time while your application is being processed - this is known as "locking-in" the rate.

2. Floating the Rate
Buyers may opt to float the loan when they believe the interest rates will drop after their loan application date and prior to closing. This is a risky decision because the interest rates may rise, increasing the mortgage payment.

3. Lock-in Options
The following lock-in options are common among lending institutions:
  • 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 will protect 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 at the current market condition sometime between submitting the loan application and the closing date.
  • Floating interest rates and floating point.
    This gives you the option to lock-in the interest rate at some time between submitting the loan application and the closing date. This puts you at risk if interest rates rise and may not be best for a homebuyer with a tight budget.

4. 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 point. This fee may vary depending on the amount of time you want to lock-in the rate for (the lock-in period).

5. 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 many delay closing.

6. 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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