Mortgage rate lock means that the lender will hold on to an interest rate at a certain number of points for a specific time period. Its purpose is to cover you for a certain time period while your loan application is being processed and you are preparing for closing on the house.

You may be able to lock in the interest rate and number of points that you’ll be charged when you file your application, during processing of the loan or when the loan is loan depending on your lender. This will protect you from increasing interest rate during processing of loan.

When buying a home or refinancing, people who do not consider rate lock is dependent on market condition while loan is being processed. In simple words it means that 4% rate when you start the loan process may reach to 4.5% till the closing, which can add up many dollars over the terms of your loan.

On the other hand, if your interest rate is higher it’ll automatically increase your loan cost. This means that you must pay more points or you have to pay a big down payment.  Higher interest rate means high monthly payments. The lender may want you pay high down payment to keep your monthly payments in line with what you can afford.

If you are refinancing to stave off the foreclosure, and rate go up, you could lose your home if lender don’t accept you for a higher rate. However when you do not have to worry about foreclosure, there are options to save the deal in case the rates go up.

Lock the rate as soon as you see the rate of your choice or when you apply for mortgage, so that your rate stay secure while your loan application is being approved. This is mainly important when you hardly qualify for current rates and any increase in rate would push buying out of your reach.

You can lock in the rates after your loan application is approved. This make sense in a way if your loan takes too long to get approved due to increasing demand for housing, but interest rate is going down.

Locking your rate will cost you as well. Shop around and compare rates of different lenders, lock rate terms will vary from lender to lender. Some lenders will ask for upfront payment and other with demand installments. There will be non refundable fee, flat fee and fee based on percentage of mortgage.

It is important to make sure that the rate lock is being offered by bank, lending company, credit union, mortgage lender and not from mortgage broker, loan officer and so on. A broker cannot make a rate on their own, they can take it from mortgage lender though.

 

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