A mutual commitment between a mortgage lender and borrower to fund a loan at a specific interest rate and cost as long as the mortgage closes before the lock period expires. Also called a rate lock, an interest rate lock, or just simply a lock.
A mutual commitment between a mortgage lender and borrower to fund a loan at a specific interest rate and cost as long as the mortgage closes before the lock period expires. Also called a rate lock, an interest rate lock, or just simply a lock.
Locking an interest rate obligates a lender to make available a specific loan program, interest rate and set of costs as long as the mortgage closes during the lock in period. Lock in periods typically range from seven to 120 days or longer, with the most typical terms being 15 days and 30 days. When most lenders quote an interest rate, they assume a 15 or 30-day lock.
While most lenders include a 15-day or 30-day lock in their mortgage pricing, extended locks can cost more. A 45 or 60 day lock might cost .5 point in closing costs, which is .005 times the loan amount, or $500 for every $100,000 financed.
Once a borrower locks in an interest rate, he or she cannot close at a lower rate, even if interest rates have dropped. Borrowers who don’t want to miss the opportunity to close at a lower rate if interest rates drop during the loan process can choose a “float-down” options. With a float-down, the borrower locks in a rate. If interest rates rise, the borrower gets the rate that was locked. However, if rates drop, the borrower can close at the new, lower rate. Float-down options usually come at a cost, however.
If a loan does not close before a lock period expires, the borrower is at risk – if interest rates rise, the borrower will have to extend the lock (usually at an additional cost) or be stuck with a higher rate. However, if a lock expires and rates fall, the borrower doesn’t get the benefit of the lower rate.
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