The Cost of Your Mortgage Loan:
Locking-in the Rate
When shopping for a
mortgage, the lender may give you a quote for the mortgage interest rate and points (additional fees
charged by the lender usually paid at closing by the borrower). These only
represent terms available at the time of the quote. They may not be
available by the closing date (which may be weeks or months in the future). To
ensure the rate and points are the same at closing as they are when quoted,
you'll need to lock-in the interest rate (also known as a rate lock or rate
Obtain a Written Agreement
Floating the Rate
Buyers opt to "float the
loan" when they believe interest rates will drop after their loan
application date and prior to closing. The risk is that rather than
dropping, interest rates rise, increasing the mortgage payment.
Most lenders will commit, in writing, to a mortgage interest rate for a specified time period while your loan
application is processed - this is known as "locking-in" the rate.
If you elect to lock-in
an interest rate, it is best to deal with a lender who provides a written
lock-in agreement. Be sure to read this agreement carefully, some lock-in
agreements become void due to actions beyond your control - such as a change
in the maximum rate for VA-guaranteed loans.
The following lock-in
options are common among lending institutions. Be sure to ask the mortgage
lenders you are considering which lock-in options they offer.
Lock-in interest rates
This will give you a clear understanding of how much your mortgage will
cost. Neither your interest rate nor points increase during the lock-in
period. This protects you against rising market conditions.
Lock-in interest rates
and floating points.
Your interest rate is locked-in and will not change for the lock-in period,
while your points may rise and fall with market conditions. With this
option, your lender may allow you to lock-in the points at the current
market condition some time between submitting the loan application and
rates and floating points.
This gives you the option to lock-in the interest rate at some time between
submitting the loan application and closing. This puts you at risk if
interest rates and points rise and may not be best for a homebuyer with a
The Cost of Locking-in
It is not unusual for a
lender to charge a fee for locking-in an interest rate and points. This fee
may vary depending on the amount of time you want to lock-in the rate (the
The fee may be charged
when you lock-in the rate (and is rarely refundable if you withdraw your
application, if your credit is denied or if you do not close on the loan) or
it may be included in your closing costs. The amount of the fee and when it
is charged will vary among lenders.
The Lock-in Period
Most lenders will offer
lock-in periods of 30-60 days. Some lenders may only have short lock-in
periods. And still
others may offer a longer lock-in period (expect higher fees for longer
The lock-in period should
be long enough for the loan approval process and to allow for any other
contingencies that may delay closing.
The Lock-in Expiration
circumstances prevent the loan from settling prior to the last day of the
lock-in period (whether caused by you or others in the process - including
the lender), you lose the interest rate and points that were locked.
Prevailing interest rates and points are usually charged under these
circumstances. Be sure to ask your lender before you lock-in what
interest rates and points will be charged if the loan is not closed before
the lock-in period expires.