Mortgage interest rate locks are your mortgage lenders guarantee to hold your interest rate for a period of time. This allows you time to close on the mortgage without the interest rate changing during the process.
Lenders guarantee interest rates using a lock period; many lenders will also guarantee points with similar lock periods. Points are a fee your lender charges in exchange for a lower interest rate. One point is equal to 1% of total loan value.
The closing process can take anywhere from several weeks to months to complete. It is important to secure a lock period that allows ample time to complete all necessary documentation and close on the mortgage. The down side of the lock period is if the interest rates go down you will be unable to change to the lower interest rate. The exception is if your lender is flexible enough to grant you the lower interest rate.
Lock periods are not the same as a lenders mortgage commitment. The commitment is simply the lenders guarantee to give you a loan. It is in your best interest to get your lock period in writing to commit the lender to guaranteeing your interest rates and points.
Your mortgage broker may charge you for the lock guarantee. Mortgage rate lock fees are generally consider junk fees and can be avoided. If you agree to a rate lock fee it may not be refundable if you decide not to borrow. If your credit is denied the lender may not refund this fee. Other lenders may charge a percentage of the points required as the lock fee. Fees vary by lender and you should consider this lock in fee as part of the criteria you use when shopping for a mortgage.
You can learn more about avoiding unnecessary fees like rate lock fees and the markup of your mortgage rate by registering for my free Underground Mortgage Refinancing Videos.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
