Most prospective home buyers are now familiar with the concept of a lock in rate for their mortgage. If a lender gives you a 30 day lock in period, this means that whatever rate and number of points he quotes you will be good for the next 30 days, regardless of changes in the interest rate market.
Of course, if the loan does not close within this 30 day period, the agreement is no longer valid, and the lender is no longer under any obligation to lend at that rate and point combination. Sometimes this is not an issue since the loan rates have not risen in the period and may even have fallen.
A thirty day lock in period is most common, but it is not easy to find a home, negotiate a price, have a home inspection and finally close within that thirty day period. Many borrowers therefore ask for additional time for the lock in period, but they have to pay extra for this.
You have to determine if the lock in period is the right choice for your circumstances. Your views on interest rates will influence this, since if you believe they are increasing, you will want to fix a rate now. Or do you think the direction of the economy will push interest rates down?
Most times, borrowers don’t want to even think about whether rates will go up or down, they just want to stick to the rate that works for their budget and they will lock in the rate.
The lock in rate give the buyer a time pressure since most of them want to have a preapproval before they search for a home. In other words, you have to get your mortgage, with a lock in rate, before even starting your home search. That adds an additional time squeeze since you have to find the house, negotiate and close all in thirty days.
Have a pretty good idea of the type and location of home you want: this will make the shopping process easier. And of course, in today’s market, sellers are very aggressive, so negotiating should be fairly easy and smooth. Choose a home inspector in advance so you can facilitate this process as well.
If you are a borrower who is just on the border of qualifying for a loan, you should definitely opt for a lock in period to assure you the loan for at least this period. If his situation changes, he may be hit with a higher different rate.
So a lock in rate is for you if you feel rates may increase, if you don’t like to take the risk that they will, or if you are concerned you will no longer qualify for the mortgage if they do.
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