Housing News

The Basics of Mortgage Lock-in

A quick guide to securing a worry-free mortgage

Ever been duped by a mortgage ad that catches your attention because of their intriguing low interest rates? Well, count yourself in. Everyday, thousands of homeowners who are eager to find a desirable rate are trapped by the senseless teasers that these companies make.

Rate quotes are published everyday and if you happen to see one that’s low, chances are, you’ll never get the same number once you apply for a loan. That’s because mortgage rates change from time to time. The numbers are dependent on a number of factors that make it difficult for ordinary citizens to predict. Debt supply and demand is one factor. Falling bond prices (those issued by the government) increase bond interest rates. Inflation is another reason and so is market sentiment.

In order to make sure that the interest rate that best suits you is the one that your monthly payments will be based upon for a specific period, you have to lock-in that interest rate.

A rate lock guarantees the borrower that the lender will offer the same rate. It is your defense against fluctuating rates and would secure you a good rate once your loan is finally approved. Take note too that most lenders won’t process your application right away considering the number of documents that they have to process everyday. If not for a rate lock, you’d definitely be at the mercy of market forces.

But this isn’t always a good resort because lenders are still longing to profit. Thus, every time a borrower gets an approved rate lock, a mortgage lock in fee, a mortgage lock in deposit, or another fee that they may ask from you. Some charge additional points if the lock-in rate is lower than the prevailing rate during the day. Also, the longer the lock-in duration, the higher the fee that is to be charged.

Lock-in rates differ in terms of validity. The most common are 30-60 days while some may last as long as 120 days. A good lender will offer you enough days for the loan application and process to be completed. Of course, borrowers will also have to estimate how long mortgage applications are usually processed in their area.

So what happens if the rate lock isn’t approved within the specified date? The borrower can lose his desired interest rate. It may be because he has failed to submit the correct requirements or the lender has not responded to his application. Worse, if market conditions rise, the lender will absolutely charge the borrower more for his loan. If the borrower believes it was not his fault, he can try to talk about it with the lender. If it doesn’t workout, he can write to any state agency and complain about his problem.

An important tip: if you want to make sure that you’re lock-in rate is worth it, consider asking about the lock-in fees, loan processing time and expiration of lock-ins.

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