What you should know about Rate Locks

A mortgage rate lock is when your mortgage rate is locked in a certain percentage. This lock means that through the entire term of the loan, there should not be an increase in your percentage rate. One of the things that
people don’t know about a mortgage rate lock is that they may be charged a fee for that rate lock.

The fee for a rate lock could be charged up front to you and you may not get that money back if your credit is not approved. Another thing you should know about a rate lock is that there are different options for the terms of the rate lock. One of the options might be to lock in the interest rate and the points. As you pay the interest you get points which are counted if you are planning on refinancing or taking out a second mortgage. The great thing about that option is that if the market changes the rate and points will stay the same no matter what happens.

Another option that may be offered is a rate lock with floating points. Under this option the rate will stay the same but, the points may rise or fall depending on the market. In this situation you may have to pay more money up front depending on the condition of the market at that time. If that did happen then it would be like you are paying a higher rate than you originally locked into to begin with.

The last option that may be offered is a floating interest rate with floating points. If you think the rate might change before the settlement then you might want this option. This option allows you to change your mind before the settlement. If you want to keep the rate you chose before the settlement then you can. The same goes for if you want to change the rate at the time of settlement. So if the rate drops in that time then you can go with the lower rate lock.

Remember the most important thing to remember about a rate lock is that it should always be put in writing for you. If you do not have the time to read through everything then ask your lender or hire someone to go through it with you like a lawyer. A rate lock can be made valid for a certain period of time if the lender chooses. The longer the lender allows it to be valid for the more fees you might end up paying.

If you do not settle on the mortgage before the rate lock expires then you might lose the rate and number of points that were locked in. Most mortgages don’t take that long to settle so really it is a matter of how long you think it will take to settle. Sometimes it is out of your control if the person selling the house takes time to do their end of the paperwork. Just remember to always know every angle of the rate lock before you sign anything.