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.

Because the length of the lock determines the interest rate you will pay, it's best to wait until the last minute to lock in the rate you are satisfied with. It's best in a purchase to always have some available home choices during the period you are working on your financing. This way offering a price and going into contract on a deal can be as quick as possible once your lock period starts.

What is a Rate Lock Period?

A rate lock or a rate commitment is a lender's promise to hold a certain interest rate and a certain number of points for you for a specified period of time while your application is processed. This prevents you from going through your whole application process and at the end of it finding out the interest rate has gone up.

Examples of rate lock time periods are 15, 30, 60 & 90 days. Some lenders will go out further for an upfront fee that can be refunded as long as the loan closes.

Speak with your mortgage professional about your lock options, as we will be able to help you determine what your lock options are and how locking too soon may not necessarily be the best option.

Make sure when you lock your rate you have your broker or lender fax you a copy of the lock confirmation. Often times brokers and lenders will say that your loan is locked but in fact it isn't. The reason for this is that they are hedging your rate in hopes of a larger yeild spread premium(rebate)if rates happen to go down.

A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Get your rate lock in writing, in the form of a loan commitment from the lender. Think of a rate lock as insurance that you'll get your loan at the agreed-upon rate, even if rates rise. The lock protects the lender, too, because you implicitly are promising to borrow at the specified rate, even if rates drop.

Depending the type of property and the state it's located in, the purchase process from contract to settlement may take up to three months, or even longer. Locking a rate for 30 days means one would have to close on the transaction within the next 30 days. If for any reason the borrower does not close within the lock period, the lender most likely charges a rate extention fee. One should consult his loan officer, real estate agent, or attorney to determine the anticipated settlement date before locking interest rate.

The longer time frame you try to lock your rate for the more "points" it will cost or your rate will be a little higher.

It would be wise to consider whether or not it is worth the increase in your interest rate to lock into a certain rate. If the interest rates are expected to rise over the next couple months, its generally a good idea to lock the rate and pay the extra .25% or so on your mortgage.

There are many possible and unforeseeable reasons to cause the delay of settlement. For instance, the seller does not want to close because his new home is not ready to move in, the cooperative board does not hold the next board meeting to determine the eligibility of new shareholders until three weeks later, the condominium board fails to provide an indemnity letter in a timely manner, or one or more of the involved parties cannot agree on a closing date, etc. Therefore, unless one is reasonably sure that closing would take place within a certain time frame or anticipates rising interest rates, it may be prudent to start the mortgage application process and "float" the interest rate. "Floating" an interest rate simply means to delay rate lock until a later time.

If you feel comfortable with the rate you are quoted and the payment it may be wise to lock into a guarantee that the rate will not change. No one can tell you or gurantee you exactly what rates will do in the futere

The choice to lock in your rate may also depend on the type of loan you are applying for. If you are choosing a fixed rate or an ARM with a fixed rate period you will want to lock your rate in. If you are choosing an ARM that has a monthly adjustable rate, there really is no need to lock the rate in as it will be changing month to month anyway.

You may also want to look at market conditions to help in the decision to lock in a rate. Several years ago the market was a decreasing rate market so it made sense to float rates. Currently we are in a rising rate market. In any market condition day to day and week to week rates may go up or down, but there is a general trend.

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