When you apply for a home loan, the rate you are quoted will be the rate for that day. These terms may not be the ones available to you at closing, weeks or months later.
But lenders today often offer their customers a lock in period for their loan at the time of application. It is only normal to realize that there will be a delay between when the loan is negotiated and the home is closed on. They also recognize that borrowers don’t like to take a risk on loan rates increasing during the period they are shopping for their loan. Most homeowners find it better to have a lock in period so they can figure their monthly mortgage payment calculation. This applies to both interest rates and points.
The lock in rate can be fixed at the application point, the processing stage or the approval stage of the home loan.
If the lender offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will be. You now have the right to borrow at 5.5% even if you are not able to close on the mortgage for the next thirty days. This is a fairly common lock in period that banks offer to attract customers. However, if you want a longer period, you may have to pay since banks do not want to take such a risk for an extended time without getting something in return.
Keep in mind, however, that a locked in rate may prevent you from taking advantage if interest rates go down, unless you have an agreement that prevents this from happening. Make sure your bank is willing to switch to the lower rate in case of decreased interest rates.
After the 30 day period, of course, the rate will go back to whatever the prevailing market rate is. If there have been no significant movements in rates, the lender may be willing to renew.
There can also be a combination of lock ins:
Both rate and points are set. In this case, the lender will hold both the rate given and any points quoted.
Rate is locked, points are not. The bank may opt to protect himself by setting a fixed base rate for the lock in period, but with the right to change the points to maintain the rate. This allows them to charge more points if they want.
If you are in a period of extremely volatile interest rates, it may be well worth your while to have a lock in term, even if there is a charge for it.
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