When a bank offers you a rate on your mortgage, it is usually good for that day only. Obviously, you will not be closing on your new house that same day, so you have to be concerned about what the rate will be at a later point.
But lenders today frequently offer their clients a lock in period for their mortgage at the time of application. It is only practical to realize that there will be a delay between when the loan is applied for and the home is closed on. Many people count on the interest rate when they figure how much their monthly mortgage costs will be. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. Banks give lock in periods for both rates or points.
Generally, banks will offer this option at any point: application, during processing, or at approval.
If the lender offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will remain. Even if you close in a month, and interest rates have increased, you will still receive the 5.5% rate on the mortgage. This is a fairly common lock in time that banks offer to attract customers. Banks are not likely to give such a guarantee for greater than 30 days, because of the greater chance of rates increasing, unless the borrower pays a premium.
Keep in mind, however, that a locked in rate may prevent you from taking advantage if interest rates actually decrease, unless you have an agreement that prevents this from occurring. This agreement is agreed upon when the lock in period is fixed.
If you don?t close on your loan during the lock in period, the guarantee expires, and you will get a new rate at prevailing rates. The lender will usually permit you to extend the period, as long as there have not been big movements in interest rates.
Lock in periods cover a number of mixtures of terms, as follows:
Rate is locked, points are locked. In other words, the bank will keep both the interest rate and number of points for 30 days.
Locked in Rate, floating points. The lender may opt to protect itself by setting a fixed base rate for the lock in period, but with the right to change the points to maintain the rate. You may have to pay additional points to get the guaranteed rate.
In a volatile interest rate environment, it is very wise to choose a lock in period, and perhaps even pay a slightly higher interest rate for a longer period.
But lenders today frequently offer their clients a lock in period for their mortgage at the time of application. It is only practical to realize that there will be a delay between when the loan is applied for and the home is closed on. Many people count on the interest rate when they figure how much their monthly mortgage costs will be. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. Banks give lock in periods for both rates or points.
Generally, banks will offer this option at any point: application, during processing, or at approval.
If the lender offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will remain. Even if you close in a month, and interest rates have increased, you will still receive the 5.5% rate on the mortgage. This is a fairly common lock in time that banks offer to attract customers. Banks are not likely to give such a guarantee for greater than 30 days, because of the greater chance of rates increasing, unless the borrower pays a premium.
Keep in mind, however, that a locked in rate may prevent you from taking advantage if interest rates actually decrease, unless you have an agreement that prevents this from occurring. This agreement is agreed upon when the lock in period is fixed.
If you don?t close on your loan during the lock in period, the guarantee expires, and you will get a new rate at prevailing rates. The lender will usually permit you to extend the period, as long as there have not been big movements in interest rates.
Lock in periods cover a number of mixtures of terms, as follows:
Rate is locked, points are locked. In other words, the bank will keep both the interest rate and number of points for 30 days.
Locked in Rate, floating points. The lender may opt to protect itself by setting a fixed base rate for the lock in period, but with the right to change the points to maintain the rate. You may have to pay additional points to get the guaranteed rate.
In a volatile interest rate environment, it is very wise to choose a lock in period, and perhaps even pay a slightly higher interest rate for a longer period.
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