Locking in your interest rate
As explained by a mortgage loan
officer...
In most cases, the terms you are quoted when
you talked to your Mortgage Company Loan Officer only represent the
terms available to borrowers settling their loan agreement at the
time of the quote. The quoted terms may not be the terms
available to you at closing weeks or even months later. Therefore
you should not rely on the terms quoted to you during the initial
discussions with a mortgage representative. Unless they have offered
you a lock-in. It is typically your option whether or not to lock-in
an interest rate and discount points. In situations where your
purchase agreement calls for a specific rate and points, you may be
obligated to lock-in. Please consult your real estate agent for
clarification.
What is a Lock-in?
A lock-in, also called a rate-lock or rate
commitment, is our promise to hold a certain number of discount
points for you, for a specific
period of time, while you loan request is processed. (Discount
points are additional charges imposed by us that are paid by you
at settlement but can sometimes be financed by adding them to the
mortgage amount, in a refinance transaction. One point equals
on percent of the loan amount.) Typically you may lock-in the
interest rate and number of discount points that you will be charged
when you
return your application to us, during the processing for the loan,
when the loan is approved, or later, but always at least
5 business days prior to closing.
A lock-in that is given when you deliver your
application for your loan may be useful because it's likely to take
us several
days or longer to prepare, document and evaluate your loan request.
During that time, the cost of mortgages may
change. But if your interest rate and discount points are locked in
you should be protected against increases while your application is
processed. This protection could affect whether you can afford the
mortgage. However, a locked-in rate and discount
points would also prevent you from taking advantage of price
decreases.
It is important to recognize that a lock-in
is not the same as a loan commitment. A loan commitment is our
promise to make
you a loan at a specific amount at some future time. Generally you
will receive a loan commitment only after your loan
application has been approved. The commitment will usually state the
loan terms that have been approved, how long commitment
is valid, and our conditions for making the loan.
Will you be charged for a Lock-In?
We may charge you an up-front fee for locking
in the interest rate and discount points depending on the length of
the lock-in and the type of loan for which you are applying. The fee
typically will not be refunded if you withdraw your application or
if you do not close the loan with us. If your application is denied,
the fee is typically returned. You should discuss whether or not
there will be any charges for locking-in your interest rate and
discount points with your Loan Officer.
How long are lock-ins valid?
Usually we will promise to hold a certain
interest rate and number of discount points for a given number of
days, and to get
these terms you must settle on the loan within that tie period.
Lock-ins of 30, 45 and 60 days are common. You'll want to take into
account any factors that may delay your closing. These may include
delays that you can anticipate such as providing materials necessary
to meet our underwriting requirements and, in case you are
purchasing anew home, unanticipated construction delays.
What happens if the lock-in period
expires?
If you don't settle within the lock-in
period, you will most likely lose the interest rate and the number
of discount points
you have locked in. This could happen if there are delays in
processing whether they are caused by you, others in the closing
process, or us. For example, your loan approval could be delayed if
we have to wait for any documents from you or from others
such as employers, appraisers, builders, and individuals selling the
home. If your lock-in expires, and market conditions
have caused interest rates to fall, you will not be entitled to
improved pricing based on current market conditions;
rather, we will offer you substantially the same rate and points
that were locked in under the expired lock-in agreement.
If market conditions have caused interest rates to rise, we will
offer you the loan based on the prevailing interest rate and points.
