A Lock-In is the term used to describe when a lender promises to offer a specific interest rate and loan terms for an extended period of time. With the rapid fluctuation in the housing market and interests rates that can vary multiple times everyday, getting your lender to offer a lock-in can be a very important tool when shopping for a mortgage, but there are also some situations when a lock-in could end up working against you.
People use Lock-Ins, or rate locks, because from the time you apply for a loan to the time you are approved can sometime stretch on for weeks. During this time, interest rates could go up, so if you do not have a rate commitment from the lender, there is nothing keeping them from changing the terms of the loan to a higher interest rate.
Since the way lenders handle rate lock-ins can vary, it is very important to bring up the subject before applying for a mortgage and find out the lenders policies.
Sometimes. This can vary depending on the lender, with some mortgage lenders requiring a lock-in fee to guarantee your interest rate. If the interest rate and points are extremely competitive, than it may be worthwhile to pay this fee. However, most lock-in fees are non-refundable, so it can be a little risky and another added expense, which seem to pile up when you are purchasing a home.
It is important to consider is your credit rating, because if you are unsure whether you will qualify for the loan, it might not be worth using the money. Also, since mortgage brokers are often not working with your best interests in mind, these charges can often simply add a nice bonus to the mortgage brokers pocket.
If you do pay a lock-in fee, make sure that you get it in writing, which is really good advice even if you do not pay anything for the rate-lock.
This can vary, but most Lock-Ins are for 30 or 60 days. It is a good idea to ask how long the lender takes to approve loans and consider the housing market. If it looks like it may take awhile to find a home or get approved, it is a good idea to ask for a longer lock-in.
When the lock-in expires, it is sometimes possible to just re-extend it if the market has not changed. However, the lender is under no obligation to do so and if interests rates have gone up, they will not typically re-extend the lock-in.
If the interest rates go down and you have already requested a lock-in, it can create some problems, as the lender may not want to lower the rate. In the case of a very large drop in interest rates, it is a good idea to put you foot down and demand an increase, although to start with, you should simply ask them if they can.
If the lender refuses to honor the lower rate, you can simply walk away, although this can be hard if you have poor credit.
Before you request an interest rate lock-in, it is a good idea to do some market research, paying close attention to interest rate trends. This will allow you to better analyze the mortgage interest rate and determine if it is a good deal. It is also important to spend some time talking with other lenders and exploring the housing market.
Just when you thought that mortgage interest rates were as low as they could go, they drop even lower making those in the industry wonder just when we will actually see the bottom. According to the weekly mortgage survey conducted by Freddie Mac , interest rates on 30 year fixed-rate mortgages averaged 4.85% the week of March 26th. This is down from last weeks average of of 4.98%. Rates for 15 year mortgages were averaging 4.58%.
Many critics say that even this drop is not enough to stimulate sales of new homes in the current economy. Tighter credit restrictions and buyer insecurity mean that even at the current low rates, home sales are unlikely to improve. Could we see mortgage interest rates as low as 3% in the next year? It has already happened for some IndyMac borrowers after the FDIC took control of the failing bank. Indeed, the Fed has been actively encouraging banks to lower rates for distressed borrowers in an effort to stem the rising tide of US foreclosures. Whether lowering the rates will have any effect on those borrowers already verging on foreclosure remains to be seen, but there is no doubt that low interest rates will encourage refinancing and stimulate home sales. All of which is great for customers and the economy but not so great for banks unless the rate changes signicantly prevent additional foreclosures.