When you are looking for mortgage rates, you have to understand that the terms you are quoted are the terms in force at the time of the quote. These terms may not be the ones available to you at closing, weeks or months later.
Most lenders today offer their prospective borrower’s a “lock in rate”. They understand that there is usually a period of time between when the loan application is made and the loan is closed. The rate of interest is an important factor in the affordability of a home, so this can be an important point. So a lock in period can be negotiated with your lender, which will fix the rate for a certain length of time. 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 is if a bank offered a lock in rate for thirty days at 5.5% interest with one point. What this gives you is the right to have that rate, even if you do not close on the mortgage for an additional 30 days. Thirty days are usual lock in periods, and are given as a marketing device since the bank usually has little risk that rates will move too much during a short period. Longer than thirty days, however, and the lender will require a payment to hold the rate since they will seek to be compensated for the additional risk.
Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates actually decrease, unless you have a clause that prevents this from happening. Make sure your lender is willing to switch to the lower rate in case of lower interest rates.
If you don’t close on your mortgage during the lock in period, the guarantee expires, and you will get a new rate at the current rates. If rates have not changed, you may be allowed to extend the lock in term.
You can have a combination of lock ins:
Locked in Interest Rate with Locked in Points. In other words, the bank will maintain both the interest rate and number of points for 30 days.
Locked Interest Rate with Floating Points. The bank may opt to protect itself by setting a fixed base rate for the lock in period, but with the right to change the points to keep the rate. In order to maintain the original rate, you may have to pay extra points.
When interest rates are moving up quickly and dramatically, choosing for a lock in period is a wise move, and may even be worth paying for.
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