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Rate Lock - What is it? 1 - Loan program The longer the length of the lock, the higher the points or the interest rate will be. This is because there is a greater risk for the lender offering that lock. Let's say you lock in a 30-year fixed loan at 8% for 2 points for 15 days on March 2. This lock will expire on March 17 (if March 17 is a holiday then the lock is typically extended to the first working day after the 17th). The lender must disburse funds by March 17th, otherwise your rate lock expires, and your original rate-lock commitment is invalid. After a lock expires, most lenders will let you re-lock at the higher of the original price and the originally locked price. In most cases you will not get a lower rate if rates drop. Lenders can lose money if your lock expires. This is because they are taking a risk by letting you lock in advance. If rates move higher, they are forced to give you the original rate at which you locked. Lenders often protect themselves against rate fluctuations by hedging. Some lenders do offer free float-downs, i.e. you may lock the rate initially and if the rates drop while your loan is in process, you will get the better rate. However, there is no free lunch as the free float-down is costly for the lender and you pay for this option indirectly, because the lender has to build the price of this option into the rate. What do you do if the rates drop after you lock? Most lenders will not budge unless the rates drop substantially (3/8% or more). This is because it is expensive for them to lock in interest rates. If lenders let the borrowers improve their rate every time the rates improved, they spend a lot of time relocking interest rates, since rates fluctuate daily. Also they would have to build this option into their rates and borrowers would wind up paying a higher rate. Lock-and-shop programs Most lenders will let you lock in an interest rate only on a specific property. If you are shopping for a house, some lenders offer a lock-and-shop program that lets you lock in a rate before you find the house. This program is very useful when rates are rising. New-construction rate locks Most lenders offer long-term locks for new construction. These locks do cost more and may require an up-front deposit. For example, a lender might offer a 180-day lock for 1 point over the cost of a 30-day lock, with 0.5 points being paid up-front, as a non-refundable deposit. Most long-term new-construction locks do offer a float-down, i.e. if rates drop prior to closing, you get the better rate. Anyone looking for speedy home financing can Contact Me with any additional questions. Of course, if you are a Real Estate Professional and you would be interested in learning how you can keep more of the profits originating from all your client's home loans, you are more than welcome to Become an Associate of My Team by visiting that page and filling out the form. Return Home for more valuable FREE information...! In order to find out what your best loan options are, you can start the process by visiting my Loan Helper page and when you submit your contact information in the form on that page, that will let me know you are interested in finding out how I can help you.
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