Mortgage loan rates fluctuate
and constantly going up and down. 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 think mortgage loan rates will go up before you close
escrow on your new Martha's Vineyard home you may want to
lock in a rate now. If you elect to lock-in an interest rate,
it is best to deal with a lender who provides a written lock-in
agreement that specifies the rate lock or rate commitment
time period for 20, 30, 45, 60, 90 or, if you can get it,
You want to make sure you ask the mortgage lenders you are
considering about the lock-in options they offer. One interest
rate option is "lock-in plus points". This is the most stable
option because neither your interest rates nor points increase
during the lock-in period. This also gives you the clearest
picture of how much your mortgage loan will cost you and it
protects you against any rise in market conditions.
Another option is "lock-in plus floating points". Simply put,
this means that the interest rate is fixed during the lock-in
period, but your points may rise and fall according to market
conditions. You may still have the option to lock-in the points
anytime between the loan application and the closing, so clarify
that with the lender.
Finally, there is the "floating lock-in plus floating points"
option, which is great if you are a soothsayer, on an inside
track with Ben Bernanke, or like to gamble. This may not be
the best option for marginal buyers who have tight budgets.
Guess what --- most lenders charge a fee for locking in the
interest rate and points. Depending upon the lock-in period,
the fee may vary from lender to lender and when it is charged
the fee may be due when you lock-in the rate. The fee is rarely
refundable if your credit is denied, or if you withdraw your
application, or if you do not close on the loan. It may also
be deferred and included in your closing costs.
Some lenders may only have short lock-in periods. Still others
may offer a longer lock-in period. Lenders will most commonly
offer lock-in periods from 30 to 60 days; the longer the lock-in
period, the higher the fees. It is important to make sure
that the lock-in period is long enough for the loan approval
process and to allow for any other contingencies that may
delay closing. I have seen it happen too many times where
glitches in the closing process have placed the agreed upon
mortgage loan in jeopardy.
If the unexpected does happen and the rate lock expires prior
to closing, whether caused by you or others in the process
including the lender, you will lose the interest rate and
points. You are then most likely subject to the prevailing
interest rates and points for the loan. This could mean thousands
of added dollars during the life of the loan, so 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.