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Locking the Interest Rate

Lenders lock (meaning "guarantee") the rate and points for a specified period. For example; If a fixed-rate mortgage (FRM) is locked at 5.5 percent and one point for 45 days, the lender is committed to closing at that price anytime within the following 45 days. For 30- or 60-day locks, expect to pay about one-eighth of a point less or more, respectively.

When you are quoted a rate by your mortgage professional, if you decide not to lock it, you are gambling that it will go down. Realize that losing this gamble means your rate could go up. If you are not willing to risk a higher rate and the quoted rate is acceptable, lock the rate and that will be one less source of worry during the mortgage process.

Once you are told that your rate is locked always ask for a rate lock confirmation to verify that your rate has actually been locked.

You should be highly suspicious of an bank or mortgage agent, who has not locked and guaranteed an interest rate, by no later than the date you sign the disclosures.

Some non conforming loans cannot be locked and the interest rate will float to close. Ask your mortgage broker to keep you informed on any rate changes that may occur prior to close.

Different lenders have different lock periods. Some lenders offer 10, 20, 30, 45 and 60 day locks. Also, different programs may reguire a different lock period. For example, most construction loans are locked for 180 days. In some cases the length of time that you need to be locked in, can affect your rate.

If you believe interest rates are rising, then you need to lock your loan ASAP. If you believe interest rates are peaking and will be dropping before your loan closes, you may want to let your interest rate float with the market until the very last moment, then lock your best rate. This is a gamble. Make sure you have the stomach for it or lock your rate in the begining and rest easy. Always talk to your trusted local mortgage consultant before you make this big decision.

Locking the rate are common in construction loans as well. Some will offer float down rates or extendend periods to cover the construction phase.

Some lenders allow up to a 360 day lock but will require an upfront locking fee be paid when the loan is locked. Typically any lock period over 60 days will require an upfront locking fee.

If your lock expires before you are ready to purchase you usually do a one time rate exstension for up to 30 days. This will cost anywhere from .125% to .5% of the loan amount depending on the lenders guidelines. Or if the rates have not gone up you can just have your mortgage broker relock the loan for you.

Generally speaking, it is true that once you lock your interest rate with a lender you may not lower the rate even if the market drops. If you are working with a mortgage broker and this situation arises, you may have your broker change your loan to a different lender to take advantage of the lowered rates. This would only be done if the market drops significantly, a half a point or more, to be worth it.

Remember that once you lock, the rate cannot be changed, even if market interest rates go down.

Lock a rate for a period of time within which one can reasonably expect to close the loan. If for any reason a borrower cannot close within the lock period, in addition to charging an extention fee, some banks also would not allow the borrower to re-lock at a lower rate for 30 days should the market interest rate falls below the original locked rate.


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