How to Lock in Your Mortgage Rate

When you are looking for mortgage rates, you have to understand that the terms you are quoted represent the terms in force at the time of the quote. Obviously, you will not be able to close on your new house that same day, so you have to worry about what the rate will be at a later point.

Most lenders nowadays offer their potential borrower?s a ?lock in rate?. They recognize that the time between deciding to shop for a home and actually finding and closing on it may take a while. Many people count on the interest rate when they figure how much their monthly mortgage costs will be. So a lock in period can be negotiated with the lender, which will keep the rate the same for a certain length of time. Lenders give lock in periods for both rates or points.

As a rule, lenders will offer this option at any stage: application, during processing, or at approval.

Perhaps you have the opportunity to lock in 5.5% interest with one point for 30 days. Even if you close in a month, and rates have increased, you will still get the 5.5% rate on the loan. Thirty days are typical lock in periods, and are given as a marketing device since the bank usually has little risk that rates will move too much during a short period. However, if you prefer a longer term, you may have to pay since banks do not want to take such a risk for a longer time without getting something in return.

Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates actually decrease, unless you have an agreement that prevents this from occurring. Make sure your lender is willing to switch to the reduced rate in case of lower interest rates.

Once the 30 day period is up, your agreement expires and you will be given whatever the new market rate is. The lender will usually permit you to extend the period, as long as there have not been wide movements in interest rates.

There are also a great many combinations you can take.

Both rate and points are set. The bank fixes both the interest rate and the number of points for the lockin period.

Locked in rate, however no points locked. The base rate stays the same, but the points may vary. In order to keep the original rate, you may have to pay extra points.

If you are in a period of very volatile interest rates, it may be well worth the time to have a lock in term, even if you have to pay for it.

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