Rate Lock - The longer the length of the lock, the higher the points or the interest rate. This is because the longer the lock, the greater the risk for the lender offering that lock.Because the length of the lock determines the interest rate you will pay, it's best to wait until the last minute to lock in the rate you are satisfied with. It's best in a purchase to always have some available home choices during the period you are working on your financing. This way offering a price and going into contract on a deal can be as quick as possible once your lock period starts.
The rate lock is one of the most important parts of a mortgage transaction. Not only do you need to trust the loan professional you work with but you should also feel comfortable with his knowledge of the industry and the market. A rate lock mistake can cost a borrower thousands of dollars. Many mortgage professionals subscribe to and pay for services which provide them with the most up to date and comprehensive rate information available to them so that they have all the tools necessary to make an educated decision on when to lock your rate in and for how long. Remember to always ask questions about locking in the rate and what the process is for the mortgage professional you are working with. By asking questions you should get a good feel for the mortgage professional you are working with. This way everyone is on the same page and there should be no confusion.
Locking the rate is a delicate thing. The broker you work with must be absolutely in tune with what your goals are. If you lock at the wrong time you can lose money. Over a long period of time a bad rate lock can cost you thousands. Make sure you trust the broker you work with.
Remember that locked rate does not equate to a full loan commitment.
One simple thing to keep in mind. Any rate quoted by your Loan Officer, no matter whether he is with a broker or a direct lender is guaranteed until the rate is locked. Even with the rate being locked the rate may not be available if the loan is not funded by the lock expiration date.
What is a Rate Lock Period?
A rate lock or a rate commitment is a lender's promise to hold a certain interest rate and a certain number of points for you for a specified period of time while your application is processed. This prevents you from going through your whole application process and at the end of it finding out the interest rate has gone up.
Examples of rate lock time periods are 15, 30, 60 & 90 days. Some lenders will go out further for an upfront fee that can be refunded as long as the loan closes.
Speak with your mortgage professional about your lock options, as we will be able to help you determine what your lock options are and how locking too soon may not necessarily be the best option.
An experienced broker will know when to lock your loan or when it might be best to hedge the market and float the rate. There are many factors which are taken into consideration when formulating which route to take and this is where your borker's expertise will take over.
Some construction loans allow you to lock in the rate for anywhere from 6 months to a 1 1/2 year. Some lenders will require a point(s) to be paid upfront to hedge their money.
Generally, if interest rates are expected to rise, it is a good idea to lock into the loan. However, the market can be very difficult to predict, and you may want the security blanket that locking the rate brings, even if rates are expected to stay about the same.
Make sure when you lock your rate you have your broker or lender fax you a copy of the lock confirmation. Often times brokers and lenders will say that your loan is locked but in fact it isn't. The reason for this is that they are hedging your rate in hopes of a larger yeild spread premium(rebate)if rates happen to go down.
Locking your interest rate - An agreement guaranteeing an individual a specified interest rate on a loan provided the loan is closed within a set period of time.
Ask your broker to provide you with a copy of the lock confirmation.
The most common rate lock periods are for 14, 30, 45, and 60 days. Longer rate lock periods will result in a higher rate. Rate locks can often be extended for a fee.
Always ask for confirmation of your rate lock so that you have it in writing. This can be the single most important part of your loan process since the interest rate you end up with will determine how much your monthly mortgage payment will be. You don't want to end up losing out on a great interest rate because your mortgage professional forgot to lock in your rate or because he/she gambled and lost. Rates do fluctuate on a daily basis and can go up or down within a matter of minutes. Your mortgage consultant should be able to assist you and educate you on when a good time to lock your rate will be, however just make sure that you receive confirmation after it has been done.
There are programs that you can lock in a rate for a specified period of time before you have located a property but there will either be fees involved or a higher rate. You will usually lock in your rate after you have an accepted offer to purchase a property or you when you have decided to lock in a rate on your property if it is a refinance.
Always try to lock an interest rate for a period of time within which your mortgage will close, as extending the rate lock can incur a fee.
When deciding with your mortgage consultant how long of a rate lock you should get, always make sure you allow for a grace period after closing. When refinancing you will want the rate lock to last a day or two after the rescission period ends, and for a purchase you may want to have a day or two incase for some reason the closing gets pushed back.
