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.
