Deciding Upon A Lock In Period For Your Mortgage

When a lender offers you a rate on your home loan, it is normally good for that day only. Unless you also close on that same day, which is unlikely, you have to take a chance on the interest rate being higher when you eventually close.

But lenders today frequently offer their clients a lock in period for their mortgage at the time of application. They recognize that the time between deciding on shopping for a home and actually finding and closing on it may take some time. They also recognize that borrowers don’t want to take a risk on mortgage rates increasing during the period they are shopping for their loan. Locking in a rate for a length of time frequently proves to be a good idea for a borrower. This applies to both interest rates and points.

This feature is typically available at the time of application, while the mortgage is being processed, or once it has been approved.

An example would be if a bank offered a lock in rate for thirty days at 5.5% interest with one point. Even if you close in a month, and rates have increased, you will still receive the 5.5% rate on the mortgage. This is a generally common lock in time that lenders offer to attract customers. Lenders 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.

Remember that the lock in period can turn against you if rates go down instead of up, unless your agreement permits you to break the agreement. You have make sure you negotiate such a feature in advance.

If your loan is not settled during the lock in period, it will expire and your new mortgage or new lock in period will be at the increased rate. If rates have not changed, you may be allowed to extend the lock in period.

Lock in periods can be a number of mixtures of terms, as we see:

Locked in Interest Rate with Locked in Points. The lender guarantees both the interest rate and the number of points for a set period.

Rate is locked, points are not. The underlying rate is fixed for the period, but the lender retains the right to change the points. The lender can charge additional points if they want to.

If interest rates are changing a great deal, it is probably a good idea to ask your banker about lock in terms.

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