When a bank offers you a rate on your mortgage, it is normally good for that day only. Unless you also close on that same day, which is unlikely, you will have a risk on the interest rate being higher when you eventually close.
But banks today frequently offer their customers a lock in period for their loan at the time of application. 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. They also recognize that borrowers don?t want to take a risk on mortgage rates increasing during the period they are shopping for their loan. Most buyers find it better to have a lock in period so they can count on their monthly home loan payment calculation. Both interest rates and points can be locked in.
The lock in rate may be fixed at the application point, the processing stage or the approval stage of the mortgage.
Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. You then have the right to borrow at 5.5% even if you are not able to close on the mortgage for the next thirty days. This is a fairly common lock in period that lenders offer to attract customers. Longer periods are also available, but usually are priced more, since banks are not going to risk rates increasing for a longer period without some compensation for the risk.
Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates go down, unless you have a clause that prevents this from occurring. This agreement is made when the lock in period is fixed.
After the 30 day period, naturally, the rate will go back to whatever the current market rate is. If there have been no significant movements in rates, the lender may be willing to renew.
You can have a combination of lock ins:
Locked in Interest Rate with Locked in Points. The lender guarantees both the interest rate and the number of points for a set period.
Locked in Rate, floating points. The underlying rate is fixed for this period, but the bank keeps the right to change the points. This permits them to charge more points if they want.
If interest rates are moving a lot, it is probably a good idea to ask your banker about lock in terms.
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