Lock-In

When people begin shopping for a mortgage loan, they will hear the term "lock-in" or "rate lock." This helps to protect the purchaser from rate fluctuations during the period specified by the lock-in. This can be beneficial if, during the buying process, rates rise. It can work against a buyer if rates fall during the buying process.

Once a seller has accepted an offer for their property, a rate can be locked. A rate lock is not guaranteed. The purchaser's credit score, the type of property, the loan-to-value ratio, locality and other factors will be considered. Once all information is available, a loan officer can tell a purchaser what their interest rate and overall purchasing cost will be.

A rate is typically locked for a week before closing. This gives the lender time to prepare documents and the purchaser time to sign them. A rate lock, technically, does not cost anything in that there are no fees associated with the benefit. However, there is additional interest tacked onto the rate. The amount of interest will depend on the length of the lock.

If closing does not occur prior to the rate lock expiring, the purchaser can apply for an extension of the lock-in. If the purchaser does not apply for the extension of the extension is not approved, the borrower will be forced to pay the rate that is available at closing.

For more information about lock-ins, speak with your real estate agent. Timing is essential if you want to pay the lowest additional interest possible.

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