How to Lock in Your Mortgage Rate
When a bank offers you a rate on your home loan, it is normally good for that day only. Usually, you don?t close on the exact day you are inquiring about rates, so you will have to take the risk that the rate will go up.
Because of this concern by borrowers, most banks now offer a lock in period, which means you can keep the quote you are given, for a while, anyway. They know that the time between deciding to shop for a home and actually finding and closing on it may take a while. And since many people calculate how much mortgage they can afford based the interest rate, they realize borrowers want to maintain that rate. The lock in period is the period during which the potential borrower can fix a rate for a future closing. This applies to both interest rates and points.
As a rule, banks will offer this option at any stage: application, during processing, or at approval.
Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. What this gives you is the privilege to have that rate, even if you do not close on the mortgage for another 30 days. This thirty day period is usual, since getting all the paperwork taken care of may take that long. Longer than that period, however, and the bank will require a payment to fix the rate since they will seek to be compensated for the additional risk.
One of the problems of a lock in rate, however, is that if rates in general go down, you may be hit with the increased rate, unless there you have an opt out clause. This agreement is agreed upon when the lock in period is set.
Once the 30 day period is up, your agreement expires and you will be given whatever the new market rate is. The bank will usually permit you to extend the period, so long as there have not been big movements in interest rates.
Lock in periods can be a number of mixtures of terms, as follows:
Rate is locked, points are locked. The bank fixes both the interest rate and the number of points for the lockin period.
Locked in Rate, floating points. The base rate stays the same, but the points may vary. This permits them to charge extra points if they want.
If interest rates are changing a great deal, it is probably a good idea to ask your banker about lock in periods. - 23211
Because of this concern by borrowers, most banks now offer a lock in period, which means you can keep the quote you are given, for a while, anyway. They know that the time between deciding to shop for a home and actually finding and closing on it may take a while. And since many people calculate how much mortgage they can afford based the interest rate, they realize borrowers want to maintain that rate. The lock in period is the period during which the potential borrower can fix a rate for a future closing. This applies to both interest rates and points.
As a rule, banks will offer this option at any stage: application, during processing, or at approval.
Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. What this gives you is the privilege to have that rate, even if you do not close on the mortgage for another 30 days. This thirty day period is usual, since getting all the paperwork taken care of may take that long. Longer than that period, however, and the bank will require a payment to fix the rate since they will seek to be compensated for the additional risk.
One of the problems of a lock in rate, however, is that if rates in general go down, you may be hit with the increased rate, unless there you have an opt out clause. This agreement is agreed upon when the lock in period is set.
Once the 30 day period is up, your agreement expires and you will be given whatever the new market rate is. The bank will usually permit you to extend the period, so long as there have not been big movements in interest rates.
Lock in periods can be a number of mixtures of terms, as follows:
Rate is locked, points are locked. The bank fixes both the interest rate and the number of points for the lockin period.
Locked in Rate, floating points. The base rate stays the same, but the points may vary. This permits them to charge extra points if they want.
If interest rates are changing a great deal, it is probably a good idea to ask your banker about lock in periods. - 23211
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