How to Lock in Your Mortgage Rate
When you are shopping for mortgage rates, you have to realize that the terms you are quoted represent the terms available at the time of the quote. Obviously, you will not be able to close on your new home that same day, so you have to be concerned about what the rate will be at a later point.
Most banks today offer their prospective borrower?s a ?lock in rate?. They realize that it can take some time before your home is found and actually closed on. And since many people calculate how much mortgage they can pay for based the interest rate, they realize borrowers want to maintain that rate. Locking in a rate for a length of time frequently proves to be a good idea for a borrower. This applies to either interest rates and points.
This feature is typically available at the time of application, while the loan is being processed, or once it has been approved.
An example would be if a lender gave you a lock in rate for thirty days at 5.5% interest with one point. Now, even if rates go upincreased, if the borrower closed within that time frame, the rate would be 5.5 %. This thirty day period is the norm, since getting all the paperwork taken care of may take that length of time. Banks are not usually willing to give such a guarantee for more than 30 days, with a greater chance of rates increasing, unless the borrower pays a premium.
One of the problems of such a rate, though, is that if rates in general decrease, you may be stuck with the higher rate, unless there is an opt out clause. This has to be done when you sign up for the lock in rate.
If your loan is not settled during the lock in period, it will lapse and your new loan or new lock in period will be at the increased rate. If there haven?t been any significant movements in rates, the bank may be willing to renew.
There are also a number of combinations you can have.
Both rate and points are locked in. Both interest rate and number of points are guaranteed.
Locked in Rate, floating points. The bank may opt to protect itself by setting a fixed base rate for the lock in period, but maintaining the right to change the points to maintain the rate. You may have to pay more points to get the guaranteed rate.
If interest rates are changing a great deal, it is probably a good idea to ask your lender about lock in periods.
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