What is a rate lock?
• Lenders will quote mortgage terms to you at the time you make application for a loan. However, most loans will not close until some time after application, 30 days on the average. Loan terms can change drastically over a 30-day period, depending on what happens in the markets. When a lender quotes loan terms to you, if the lender guarantees that those terms will not change between application and closing, those terms are considered “locked”. It is important to have any rate lock guarantee provided to you by a lender be committed in writing to you including explanations of how those terms could change, if at all. You should be aware that locked terms usually mean that the rate and points you lock in cannot increase but they also cannot decrease unless the lender specifically offers that option in the written agreement. Loan terms that are not locked are considered “floating” and are subject to whatever changes are required by the market. Most lenders will not offer a rate lock to you
You cannot close a mortgage loan without locking in an interest rate. There are four components to a rate lock: • Loan program. • Interest rate. • Points. • 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 prevailing market rates/poin
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. Suppose on March 2 you obtain a 15-day lock for a 30-year fixed loan at 8 percent, 2 points. The 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 rate/poin
This is optional, and there are trade offs involved in a decision to lock in the rate or let it float. We will discuss whether it is a good idea at the time you apply. A rate lock is the amount of time, usually 30 — 60 days, that a lender will guarantee a loan’s interest rate. The longer the length of the lock, the higher the points or the interest rate.
A Rate Lock is needed to close a mortgage loan. The Rate Lock guarantees a specific interest rate from any time from application to closing. Rate Locks can range from 15 to 360 days depending on the loan program and the lender. There is usually a cost to the borrower for locking the rate. The longer the Rate Lock, the higher the cost.
