How To Understand The Lock In Period For Your Mortgage

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These terms may not be the the same as those available to you at settlement, weeks or months later.

But lenders today frequently offer their customers a lock in period for their loan at the time of application. They understand that there is usually a period of time between when the mortgage application is made and the loan is closed. The rate of interest is a critical factor in the affordability of a house, so this can be an important point. So a lock in period can be negotiated with your lender, which will keep the rate the same for a certain length of time. Banks offer lock in periods for both rates or points.

Generally, banks will offer this option at any stage: application, during processing, or at approval.

Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. What this gives you is the privilege to have that rate, even if you do not close on the mortgage for another 30 days. This thirty day period is usual, since getting all the paperwork done may take that long. Longer periods can also be obtained, but usually are priced higher, since banks are not willing to risk rates moving against them for a longer period without some compensation for the risk.

Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates go down, unless you have an agreement that prevents this from happening. This term is made when the lock in period is fixed.

After the 30 day period, of course, the rate will revert to whatever the prevailing market rate is. If rates have not changed, you may be allowed to extend the lock in term.

Lock in periods can be a few of mixtures of terms, as follows:

Rate is locked, points are locked. The bank guarantees both the interest rate and the number of points for a set period.

Locked in Rate, floating points. Here, the rate may be locked, but the lender gives itself some room by maintaining the right to change the points paid. In order to maintain the original rate, you may have to pay extra points.

If you are in a period of extremely volatile interest rates, it may be well worth your while to have a lock in period, even if you have to pay for it.


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