Rate Lock Basics: What Everyone Should Know
What is a rate lock? According to the Consumer’s Guide to Mortgage Lock-ins, a rate lock is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is being processed.
Establishing a rate lock will depend upon the lender. It may take weeks before all of the paperwork is prepared, so locking in a rate during this time benefits you, the consumer.
There is a disadvantage, however to a rate lock. Let’s assume that your lender has given you a rate lock and is now processing the paperwork. Let’s also assume that the interest rate has gone down. The question then becomes whether or not the lender will offer you that lower rate.
It is important that the rate lock is given to you in writing. The Consumer Guide asserts that some lenders have pre-printed forms that set out the exact terms of the lock-in agreement, while others may only offer an oral agreement. It is prudent course of action to seek out only those lenders who offer the former, rather than the latter.
Will you be charged for a rate lock? Some lenders do assess a fee at the outset for a rate lock. Also be aware that some may also keep that fee if, for whatever reason, your application is withdrawn.
How much is the fee? That depends entirely on the lender. They may charge you a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point added to the rate you lock in. It varies among lenders.
How long will the rate lock be available? Although the normal lock-in time is from 30-60 days, there are some lenders who may only offer the rate lock for 7 days, while others may offer you a 120-day rate lock. Keep in mind that the longer the time given, the more money you will pay for this service.
Here are some questions you can ask each lender you visit regarding rate locks, as posed by the Consumer Guide:
* Does the lender offer a lock-in of the interest rate and points?
* When will the lender let you lock in the interest rate and points? When you apply? When the loan is approved?
* Will the lock-in be in writing? If the lock-in is not in writing, you will have no record of the lender’s agreement with you in case of a dispute.
* Does the lender charge a fee to lock in your interest rate? Does the fee increase for longer lock-in periods? If so, how much?
* If you have locked in a rate, and the lender’s rate drops, can you lock in at the lower rate? Does the lender charge you an additional fee to lock in the lower rate?
* Can you float your interest rate and points for now, and lock them in later?