If you are
just beginning to shop for that new home, then the home purchase,
loan acquisition and loan closing process could take up to 90
days or more. If you are refinancing, the loan process will be
considerably shorter. However, to assure having your interest
rates be at the current level, you should arrange for a rate lock
now. Some lenders offer a "lock and shop" commitment
while you are trying to locate your dream home.
A rate lock
acts as a type of insurance policy that guarantees the borrower
will get the loan at an agreed upon rate, even if overall interest
rates go up. This lock-in will also protect the lender, because
the borrower is committed to borrow money at a specific rate even
if rates were to drop.
The borrower
agrees to pay certain fees and points to secure the interest rate
for a set period of time. If the agreed upon period expires before
the loan is closed, the contract expires and the borrower must
pay the prevailing rate.
Some borrowers
opt to "float" their interest rates in anticipation
that rates will fall further during the loan process. It has been
shown repeatedly that trying to pick the low point for mortgage
interest rates is like trying to pick the low and highpoints in
the stock market.
Lock-in periods can be 30, 60 or even 90 days, depending on the
lender's rate lock programs. The longer the lock-in period, the
greater the likelihood that the borrower will have to pay a higher
fee or rate.
Always get
your rate lock in writing. Getting a verbal commitment over the
phone is not a rate lock; it is simply a rate quote. The written
rate lock will be in the form of a loan commitment letter that
should include your name and the lender's name. It should also
specify the stated interest rate, any fees and points to be paid,
the date the rate was locked-in and the date the rate lock commitment
expires.
Again, if
the borrower is planning to purchase a home, they should be sure
to get a rate lock that will cover the entire escrow period. Likewise,
they need to be in regular contact with their lender to ensure
the loan process is going smoothly. The borrower should respond
promptly to all requests for any additional information that may
be needed. Delays can result in the locked rate expiring, so make
sure that you are not the cause.
The point
is this: Locking in your rate now can eliminate a lot of the uncertainty.
The rate lock is a legal commitment between the borrower and the
lender. A promise is made by the lender to the borrower to guarantee
to lend at a specific rate for a specific period of time. As long
as you do your part to provide the needed documentation to the
lender, the lender will honor the rate lock commitment. Please
consult your mortgage professional to ensure you qualify for the
loan program and rate you are locking. We are always here to help
you.
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