The rate lock is one of the most important
items in the loan process. Your rate lock will determine
your interest rate, many times, for the entire term of
your loan. If your rate is locked too soon, you could
possibly end up paying a higher rate, if your rate lock
is locked to late you could end up paying a higher rate.
For this reason is helps to work with a knowledgeable
mortgage person who knows rates and has numerous
different tools at his/her disposal that will give
him/her the upper hand when it comes to understanding
rate locks and when the right time to lock will be. This
does not guarantee that you will receive the best rate
but it does give you the best chance to have your rate
locked at the right moment in time. Talk with your
mortgage professional often to find out what is going on
with your rate lock and to make sure that you know when
your rate is locked.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
If your lock is about to expire and you have not closed on your loan you can extend it with the lender. They may charge a fee usually 1/8 of the loan amount.
Some lenders requrie an appraisal to be completed before accepting a rate lock. Also, on home purchases, they require a purchase agreement to be signed to accept a lock as well.
A reputable mortgage broker will not charge you to lock your interest rate. However if you are asked for a fee to lock your rate make sure you get a written contract entitling you to a refund if the loan does not close. Any money that is deposited towards a rate lock should be applied to the closing costs of the loan or refunded at the time of loan close.
Remember that locked rate does not equate to a full loan commitment.
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.
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Information listed above is to be used for educational purposes only and is not guaranteed
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