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 rate lock.
A Rate Lock is 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 to lock a rate?
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 up front,
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 Rate Locked 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
rate lock because your mortgage terms should not increase above the
interest rate and points that you've agreed upon even if market conditions
change.
Locked 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 rate locks 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 rate lock 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 rate lock 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 up your approval ?
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.
Al lie Mae 1-08-2004
