Mortgage Interest Rate Lock-Ins
A mortgage rate lock, also called a mortgage
lock-in or rate
commitment, 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 processed. The purpose of a mortgage rate lock is to ensure
that the interest rate, points and certain other fees that you
are quoted today remain the same at your settlement.
Depending upon the lender, you may be able to lock in these terms
when you file your application, during processing of the loan,
when the loan is approved, or later.
Rate Lock Benefits
A rate lock that is given when you apply for a mortgage loan
may be useful because it is likely to take your lender several
weeks or longer to prepare, document, and evaluate your loan application.
During that time, the cost of mortgages may change. But if your
interest rate and points are locked in, you should be protected
against increases while your application is processed. This protection
could affect whether you can afford the mortgage. However, a locked-in
rate could also prevent you from taking advantage of price decreases,
unless your lender is willing to lock in a lower rate that becomes
available during this period.
A Rate Lock is not the same as a Loan Commitment
It is important to recognize that a rate lock is not
the same as a loan commitment, although some loan commitments may
contain a rate lock. A loan commitment is the lender's promise
to make you a loan in a specific amount at some future time. Generally,
you will receive the lender's commitment only after your
loan application has been approved. This commitment usually will
state the loan terms that have been approved (including loan amount),
how long the commitment is valid, and the lender's conditions
for making the loan such as receipt of a satisfactory title insurance
policy protecting the lender.
Rate Lock Fees
Some lenders charge an up-front fee for locking in
your interest rate and points, which might not be refunded if you
withdraw your application, if your credit is denied, or if you
do not close the loan. Other lenders may charge a fee at settlement.
The fee might be a flat fee, a percentage of the mortgage amount,
or a fraction of a percentage point added to the rate you lock
in. The amount of the fee and how it is charged will vary among
lenders and may depend on the length of the rate lock period.
Generally, longer rate lock periods require higher fees.
Rate Lock Options
Lenders may offer different options for locking-in
the interest rate and points that you will be charged, such as:
- Locked-In Interest Rate, Locked-In Points
With this option, the lender lets you lock in both the
interest rate and points quoted to you. Your mortgage terms should
not increase above the interest rate and points that you have agreed
upon even if market conditions change.
- Locked-In Interest Rate, Floating Points
With this option, you lock
in the interest rate, while the points
may rise or fall (float) depending
on changes in market conditions. If market interest
rates drop during the lock-in period, the points
may also fall. If they rise, the points may increase.
Even if you float your points, your lender may allow you to lock-in
the points at some time before settlement at whatever level is
then current. For example, say you have locked in a 10.5 percent
interest rate, but not the 3 points that went with that rate.
A month later, the market interest
rate remains the same, but the points
the lender charges for that rate
have dropped to 2.5. With your lender's
agreement, you could then lock in
the lower 2.5 points. On the other
hand, if you float your points but
market interest rates increase by
the time of settlement, the lender
may charge a greater number of points
for a loan at the rate you have locked
in. In this case, the benefit you
might have had by locking in your
rate may be lost because you will
have to pay more in up-front costs.
- Floating Interest Rate, Floating Points
With this option, the lender lets you lock in the interest rate
and the points at some time after application but before settlement.
If you think that rates will remain level or even go down,
you may want to wait on locking in a particular rate and points.
If rates go up, you should expect to be charged the higher
Because practices vary, you may want to ask your lender whether
there are other options available to you.
The information provided in this website is
not legal advice and should not be interpreted as legal advice.
This website is intended to provide a basic understanding of this
information in summary form. This information may not be comprehensive,
is subject to change, and may not apply to all individual circumstances.
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government agencies or with an attorney, particularly as it relates
to your individual circumstances. Your use of this website indicates
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