What is a mortgage rate lock?
This refers to a contract between an interest rate lock mortgage company and a borrower that permits the borrower to retain a fixed interest rate for a given period. The locked rate is safeguarded against increasing during that period.
What are the benefits of an interest rate lock program for homes?
Interest rates often fluctuate every day. When you lock your mortgage, you can approximate your monthly repayment with close precision, thus avoiding penalties arising from market changes. A mortgage rate lock protects you from higher market rates. For instance, if you lock your rate at 3.5 % for 30days and rates jump up to 5% within that period, you will still have your loan at the lesser rate.
Deciding not to seek an interest rate lock is not always a bad option — when rates are generally dropping, one would wish to benefit from a favorable interest rate. Nevertheless, failure to lock your Interest rate can be pricey in a growing-rate environment.
Mortgage rate lock period
Borrowers usually opt for a period of between 15 days and 90 days. Mortgage companies allow borrowers to choose a lock period in fifteen-day increments.
Most lenders charge no fee for up to 30 days for a lock rate period. A more extended lock period may incur a lock fee since your lender will need more resources and time to guard your rate.
What is the earliest stage for a mortgage rate lock?
You will not get a chance to rate lock until your mortgage lender has done a preliminary assessment of your finances. After authenticating your credit score and having a sense of how much you plan to spend, the lender can offer a locked rate.
Some mortgage lenders offer a rate lock after the borrower is prequalified with just an address of a potential home. Other lenders may wait until the seller accepts the purchaser’s offer.
However, if a borrower locks too early, he or she might exceed the expiration date and face extension fees. Thus, if you have just started looking for a property, it is not wise to lock just yet.
It is also crucial to know that your mortgage lender can annul a rate lock if some items on your application change between the agreement time and final underwriting time.
Float-down lock
This product is designed to assist the borrower to benefit from lower rates — this is in addition to the standard mortgage rate lock. Float-down locks offer a win-win option: You are assured of a fixed rate now and a lower rate in case of drops. Nevertheless, there could be a fee accompanying this option, and if there are no fees, there might be some fine details to consider. For instance, if rates drop by a tiny margin, it might not justify a float-down lock.
What if the rate lock period expires before closing?
Normally, real estate deals do not close on time. However, if the rate lock period expires, your lender may offer to extend the rate lock for either a fee or free. It is vital to note that you may not be accountable for the extension fee, either. Depending on the person responsible for the failure of the loan to close in time, the mortgage lender might pay a portion or cover the entire cost.
