Putting a Lock on Your Interest Rate
When you talk with your MMC mortgage banker, be sure to discuss the advantages and disadvantages of locking the interest rate. There are many things to consider when you are making your decision. Depending on the current direction of interest rates and the individual circumstances of your mortgage transaction it may or may not be advantageous to lock your rate at the time of your loan application. Your mortgage banker will discuss your options and help guide you through the process.
| What is a "locked-in" interest rate? |
This is the lender's commitment to deliver the rate and points quoted at the time of lock in. If the marketplace rates go up, you can be assured that the rate will not change while your loan is being processed.
A locked-in interest rate is not the same as the final approval of your loan. It simply provides you with a commitment by the lender to guarantee a specified interest rate and points for a limited time period, usually 15, 30, or 60 days. |
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| Is there a fee to lock-in a rate? |
| Most interest rate locks are free; however, some loan programs do require a fee for locking in a rate and points. Typically this fee is charged on longer term rate locks in excess of 90 days or more. You will be charged a fee upfront which will not be |
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| refunded to you if you withdraw your application, if your credit is denied, or if you fail to close the loan. |
Lender Options for Lock-Ins
• Locked-In Interest Rate and Points
The lender offers you the opportunity to lock in both an interest rate and points. This will keep your mortgage terms from increasing if market conditions change.
• Floating Rate and Points
You can lock in rates and points any time after you apply. The advantage to this option is that if interest rates are likely to stay level or go down, the delay in locking can work in your favor and may give you a lower rate. Of course, if rates go up, you will have to pay a higher rate.
How Long Are Lock-Ins Valid?
Depending on the term of lock you select, the lender will promise to hold a certain interest rate for a fixed number of days. To get these terms you must close the loan within that time period. Lock-ins of 30 to 60 days is common. However, some loan programs may offer rate locks for shorter and longer periods. As a general rule, the longer the lock, the greater your interest rate will be as there is a cost associated with guaranteeing interest rates for longer periods.
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The lock-in period should be long enough to allow for closing, and any other contingencies imposed by the lender. Before deciding on the length of the lock-in, you should ask your mortgage banker what the average time is for processing loans. You'll also want to take into account any factors that might delay your settlement. These may include delays that you can anticipate in providing materials about your financial condition; and in case you are purchasing a new house, unanticipated construction delays, credit problems, and other issues which may need to be addressed. |
What Happens if the Lock-In Period Expires?
If you don't close within the lock-in period, you might lose the interest rate you had locked in. This could happen if there are delays in processing whether they are caused by you, others involved in the settlement process, or the lender. For example, your loan approval could be delayed if the lender has to wait for any documents from you or from others such as employers, appraisers, termite inspectors, builders, and individuals selling the home. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate. If market conditions have caused interest rates to rise, most lenders will charge you a higher rate.
How Can You Speed the Approval of Your Loan?
Much of the information required by your lender can be brought with you to the original loan application. This will help get your application moving more quickly through the process. So when you first meet with your lender, be sure to have the requested items, and respond promptly to your lender's requests for information.
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