In
most cases, the terms you are quoted when you shop among
lenders represent the terms available at the time of
the quote. Therefore, you should not rely on the terms
quoted to you when shopping for a loan unless a lender
is willing to offer a lock-in.
Rate
Lock-In is a lender's promise to hold a certain interest
rate and a certain number of points for you, usually
for a specified period of time, while your loan application
is processed. Depending upon the lender you may
be able to lock in the interest rate and number of points
when you file your application, during processing of
the loan or when the loan is approved. A lock-in that
is given when you apply for a loan may be useful because
it's likely to take your lender several weeks or longer
to prepare, document, and evaluate your loan application.
During that time, the cost of mortgages may change.
But if your interest rate and points are locked in,
you should be protected against increases while your
application is processed. This protection could affect
whether you can afford the mortgage. However, a locked-in
rate could also prevent you from taking advantage of
rate decreases.
It
is important to recognize that a lock-in is not the
same as a loan commitment. A loan commitment is the
lender's promise to make you a loan in a specific amount
at some future time. Generally, you will receive the
lender's commitment only after your application has
been approved. This commitment usually will state the
loan terms that have been approved, how long the commitment
is valid, and the lenders conditions for making the
loan.
Will
You Be Charged for a Lock-In?
Lenders
may charge a fee for locking in the rate of interest and
number of points for your mortgage. Some lenders may charge
you a fee upfront, and may not refund it if you withdraw
your application, if your credit is denied, or if you
do not close the loan. Others might charge the fee at
closing. The fee might be a flat fee, a percentage of
the mortgage amount, or a fraction of a percentage point
added to the rate you lock in.
Lenders
may offer different options in establishing the interest
rate and points that you will be charged, such as:
Locked-In
Interest Rate-Locked-In Points
Under
this option, the lender lets you lock in both the interest
rate and points quoted to you. This option may be considered
to be a true lock-in because your mortgage terms should
not increase above the interest rate and points that you've
agreed upon even if market conditions change.
Locked-In
Interest Rate-Floating Points
The
lender lets you lock in the interest rate, while permitting
or requiring the points to rise and fall (float) with
changes in market conditions.
Floating
Interest Rate-Floating Points
The
lender lets you lock in the interest rate and the points
at some time after application but before closing. If
you think that rates will remain level or even go down,
you may want to wait on locking in a particular rate and
points. If rates go up, you should expect to be charged
the higher rate.
How
Long Are Lock-Ins Valid?
Usually
the lender will promise to hold a certain interest rate
and number of points for a given number of days, and to
get these terms you must close the loan within that time
period. Lock-ins of 30 to 60 days are common. But some
lenders may offer a lock-in for only a short period of
time (for example, 7 days after your loan is approved)
while some others might offer longer lock-ins (up to 120
days). Lenders that charge a lock-in fee may charge a
higher fee for the longer lock-in period. Usually, the
longer the period, the greater the fee.
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 find
out the average time 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 to
be addressed, etc.
What
Happens if the Lock-In Period Expires?
If
you don't close within the lock-in period, you might lose
the interest rate and the number of points 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
and points. If market conditions have caused interest
rates to rise, most lenders will charge you more for your
loan.
How
Can You Speed the Approval of Your Loan?
Much
of the information required by your lender can be brought
with you when you apply for a loan. This may help to get
your application moving more quickly through the process.
So when you first meet with your lender, be sure to have
the asked for items, and respond promptly to your lender's
requests for information.
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