A great deal on mortgage interest rates and points today is really only a great deal if your loan is closing today. If you are just initiating a loan, market forces may conspire to push rates higher (or lower) by the time of your settlement. But there is good news: You may still be able to get the terms you were hoping for by getting a “lock-in.”
Mortgage lock-in Deal at Settlement
How It Works
A lock-in is a lender’s promise to hold a stated interest rate and a certain number of points for you – usually for a specific period of time while a loan closes. Since loans generally take several weeks to process, the cost of a mortgage can change significantly between the opening and closing. The difference can be enough to price a mortgage out of the reach of some buyers. Of course, there is the possibility that rates will go down and you won’t be able to enjoy the decrease – unless a lender agrees to lock-in the lower rate.
Don’t confuse a lock-in with a loan commitment, although some loan commitments include lock-ins. Generally a loan commitment comes only after your application is approved. It is a promise to loan a specific amount, within a stated length of time, provided you meet the other conditions of the loan (such as securing adequate insurance on the home).
You may be charged a fee in order to secure a lock-in. This can be a flat amount, a percentage of the loan, or a fraction of a point. Asking for a longer lock-in period may mean a higher fee. While some lenders charge the fee at loan closing, others collect it upfront.
How Long Is a Lock-in Period?
A lock-in period is possibly as short as seven days from the time your loan is approved. But more typically, it is 30 to 60 days. Some lenders go as far as offering a 120-day lock-in. That is the amount of time you have to settle the loan and still get the locked-in terms.
When loan shopping, print and use the following checklist of questions:
Checklist of 10 Lock-in Questions to Ask Prospective Lenders
Lock-ins and Fees
____ 3. Is there a fee for the lock-in? Does the fee increase if I ask for a longer lock-in period? How much?
____ 4. Once I have locked in a rate, if your rate drops, can I lock in the lower rate? If so, will there be a fee?
____ 5. Can I float my interest rate and points for now, and lock them in later?
Loan Processing Time
____ 7. What is your average time for processing recent loans?
Expiration of Lock-ins
____ 8. If the lock-in expires before settlement, what rate will I pay? Will it be the rate in effect at the time of the expiration?
____ 9. If my loan isn’t settled before the expiration date, will you refund some or all of the fees paid to lock-in terms if I decide to cancel my loan?
____ 10. If my lock-in expires and I want to get another lock-in at the rate in effect at the time of expiration, will I be charged an additional fee for the second lock-in?