What is a rate lock?
You cannot close a mortgage loan without locking in an interest rate. There are four components to a rate lock: 1) Loan program 2) Interest rate 3) Points 4) Length of the lock 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. Let’s say you lock in a 30-year fixed loan at 8% for 2 points for 15 days on March 2. This lock will expire on March 17 (if March 17 is a holiday then the lock is typically extended to the first working day after the 17th). The lender must disburse funds by March 17th, otherwise your rate lock expires, and your original rate-lock commitment is invalid. The same lock might cost 2.25 points for a 30-day lock or 2.5 points for a 60-day lock. If you need a longer lock and do not want to pay the higher points, you may instead pay a higher rate. After a lock expires, most lenders will let you re-lock at the higher of the original price and the origi
You cannot close a mortgage loan without locking in an interest rate. The longer the length of the lock, the points or the interest rate will become higher. This is because the longer the lock, the greater the risk for the lender offering that lock. After a lock expires, most lenders will let you re-lock at the higher of the original price and the originally locked price. In most cases you will not get a lower rate if rates drop. Lenders can lose money if your lock expires. This is because they are taking a risk by letting you lock in advance. If rates move higher, they are forced to give you the original rate at which you locked.
A rate lock is a lender’s promise to “lock” a specified interest rate and a specified number of points for you for a specified period of time while your loan application is processed. During that time, interest rates may change. But if your interest rate and points are locked in, you should be protected against increases. Conversely, a locked-in rate could also keep you from taking advantage of price decreases. There are four components to a rate lock: • Loan program • Interest rate • Points • Length of the lock period The longer the length of the lock period, the higher the points or the interest rate will be. This is because the longer the lock, the greater the risk for the lender offering that lock.
