February 28, 2010 by Jodi N. Glass
If you have been lookingfor a home loan, you will be familiar with the idea of a lock in period for the rate and points on the loan. A rate on your home loan is locked in at the time of application, and even if rates get higher, you will have that rate on the mortgage, within the lock in period, usually 30 days.
Of course, if the loan does not close within this 30 day period, the agreement is no longer valid, and the lender is no longer obligated to lend at that rate and point combination. This may not be an issue if rates stay the same or even decrease.
Most borrowers are offered a 30 day lock in period, but it is not practical in some situations to locate, contract on, inspect and close a house in 30 days. For this reason some buyers will opt for an additional 15 days, but lenders charge additionally for this.
So the first decision you have to make is whether a lock in period is the best thing to do in your case. Your views on interest rates will influence this, since if you believe they are going up, you will want to set a rate now. Or are you of the opinion that a weakening economy means rates are going no where but down?
Another concept many borrowers have is that they don’t want to have to make this judgment, they just want to know the numbers they have to work with in purchasing their home.
The lock in rate creates a time pressure since most buyers want to have a preapproval before they search for a home. Now you have to rush to get the mortgage negotiated when you are just starting to look for a home. This is a tight time frame, trying to find the house, negotiate the price and close in such a short period.
Having some good ideas of where you want to live will be a big help. And today’s buyers market will also make it faster to negotiate what you pay. Choose a home inspector in advance so you can facilitate this process as well.
If you are a borrower who is just on the border of qualifying for a mortgage, you should definitely take a lock in period to assure you the mortgage for at least this period. If you are lucky enough to be able to obtain a loan and a lock in rate, you probably want to secure them before either your individual and economic circumstances change and you are no longer qualified.
So a lock in rate is for you if you believe rates may increase, if you don’t like to take the chance that they will, or if you are concerned you will no longer qualify for the mortgage if they do.
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