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How to Lock in Your Mortgage Rate
When you apply for a home loan, you will be given a rate, but that rate is for that day only. These terms may not be the the same as those available to you at closing, weeks or months later.
Most lenders nowadays offer their potential borrower's a "lock in rate". They understand that there is usually a period of time between when the mortgage application is made and the loan can be settled. They also recognize that borrowers don't like to take a risk on mortgage rates increasing during the period they are looking for their loan. Locking in a rate for a length of time often proves to be advantageous for a borrower. Banks offer lock in periods for both rates and points.
This feature can be made available at the time of application, while the mortgage is being processed, or after it is approved.
If the bank offered you a 30 day lock in term for a rate of 5.5%, with one point, that is what it will be. You now have the right to borrow at 5.5% even if you are not going to close on the mortgage for the next thirty days. This thirty day period is usual, since getting all the paperwork done may take that long. Banks are not usually willing to give such a guarantee for more than 30 days, with a greater chance of rates going up, unless the borrower pays a premium.
This can go both ways, because if rates go down, you may want to cancel it, but the agreement must permit it. You have be sure to negotiate such a feature in advance.
If you don't close on your mortgage during the lock in period, the guarantee expires, and you will get a new rate at the current rates. The bank will normally permit you to extend the period, as long as there have not been wide movements in interest rates.
There are mixtures in terms of lock in periods.
Locked in Interest Rate with Locked in Points. Both interest rate and number of points are fixed.
Rate is locked, points are not. In this case, the rate may be locked, but the lender gives himself some room by maintaining the right to change the points paid. This allows them to charge more points if they want.
In a turbulent interest rate environment, it is very wise to choose a lock in period, and perhaps even pay a slightly higher interest rate for a longer period.
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