When you are shopping for mortgage rates, you have to realize that the terms you are quoted are the terms available at the time of the quote. These terms may not be the ones available to you at settlement, weeks or months later.
Most banks nowadays offer their potential borrower?s a ?lock in rate?. It is only normal to realize that there will be a delay between when the loan is applied for and the home is closed on. And since most people calculate how much mortgage they can pay for based the interest rate, they realize borrowers want to maintain that rate. The lock in period is the time during which the prospective borrower can fix a rate for a future closing. You should be able to lock in either or both points and rates.
This feature is typically available at the time of application, while the loan is being processed, or after it is approved.
Perhaps you have the opportunity to lock in 5.5% interest with one point for 30 days. This means that even if rates go upincreased, if the borrower closed within that thirty day period, the rate would stay 5.5 %. Thirty days are usual lock in periods, and are offered as a marketing device since the bank usually has little risk that rates will move too much during a short period. However, if you prefer a longer term, you may have to pay since banks do not want to take such a risk for an extended time without getting something in return.
One of the problems of such a rate, however, is that if rates in general decrease, you may be hit with the higher rate, unless there is an opt out clause. You have be sure to negotiate such a feature in advance.
After the 30 day period, of course, the rate will revert to whatever the prevailing market rate is. If there haven?t been any significant movements in rates, the lender may be willing to renew.
There are combinations in terms of lock in periods.
Locked in Rate, locked in points. The lender fixes both the interest rate and the number of points for the lockin period.
Locked in rate, but no points locked. In this case, the rate may be locked, but the lender gives itself some leeway by maintaining the privelege to change the points paid. In order to maintain the original rate, you may have to have extra points.
In a volatile interest rate environment, it is very wise to opt for a lock in period, and perhaps even pay a slightly higher interest rate for a longer period.
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