Locking In Your Interest Rate
As explained by a mortgage loan officer…
In most cases, the terms you are quoted when you talked to your Mortgage Company Loan Officer only represent the terms available to borrowers settling their loan agreement at the time of the quote. The quoted terms may not be the terms available to you at closing weeks or even months later. Therefore you should not rely on the terms quoted to you during the initial discussions with a mortgage representative. Unless they have offered you a lock-in. It is typically your option whether or not to lock-in an interest rate and discount points. In situations where your purchase agreement calls for a specific rate and points, you may be obligated to lock-in. Please consult your real estate agent for clarification.
What is a Lock-in?
A lock-in, also called a rate-lock or rate commitment, is our promise to hold a certain number of discount points for you, for a specific period of time, while you loan request is processed. (Discount points are additional charges imposed by us that are paid by you at settlement but can sometimes be financed by adding them to the mortgage amount, in a refinance transaction. One point equals on percent of the loan amount.) Typically you may lock-in the interest rate and number of discount points that you will be charged when you return your application to us, during the processing for the loan, when the loan is approved, or later, but always at least 5 business days prior to closing.
A lock-in that is given when you deliver your application for your loan may be useful because it’s likely to take us several days or longer to prepare,document and evaluate your loan request. During that time, the cost of mortgages may change. But if your interest rate and discount 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 and discount points would also prevent you from taking advantage of price decreases.
It is important to recognize that a lock-in is not the same as a loan commitment. A loan commitment is our promise to make you a loan at a specific amount at some future time. Generally you will receive a loan commitment only after your loan application has been approved. The commitment will usually state the loan terms that have been approved, how long commitment is valid, and our conditions for making the loan.
Will you be charged for a Lock-In?
We may charge you an up-front fee for locking in the interest rate and discount points depending on the length of the lock-in and the type of loan for which you are applying. The fee typically will not be refunded if you withdraw your application or if you do not close the loan with us. If your application is denied, the fee is typically returned. You should discuss whether or not there will be any charges for locking-in your interest rate and discount points with your Loan Officer.
How long are lock-ins valid?
Usually we will promise to hold a certain interest rate and number of discount points for a given number of days, and to get these terms you must settle on the loan within that tie period. Lock-ins of 30, 45 and 60 days are common. You’ll want to take into account any factors that may delay your closing. These may include delays that you can anticipate such as providing materials necessary to meet our underwriting requirements and, in case you are purchasing anew home, unanticipated construction delays.
What happens if the lock-in period expires?
If you don’t settle within the lock-in period, you will most likely lose the interest rate and the number of discount points you have locked in. This could happen if there are delays in processing whether they are caused by you, others in the closing process, or us. For example, your loan approval could be delayed if we have to wait for any documents from you or from others such as employers, appraisers, builders, and individuals selling the home. If your lock-in expires, and market conditions have caused interest rates to fall, you will not be entitled to improved pricing based on current market conditions; rather, we will offer you substantially the same rate and points that were locked in under the expired lock-in agreement. If market conditions have caused interest rates to rise, we will offer you the loan based on the prevailing interest rate and points.,
NOTE from a Buyer’s Agent: It is always a good practice to get everything in writing. When a lender provides you with a loan approval, get it in writing. The same holds true when a lender is quoting a rate and points or a rate lock…insist on it in writing!
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