The lock period is the amount of time a lender has agreed to make a loan with a specific interest rate, terms and costs available to a borrower.
Typical lock periods include 7, 15, 21, 30, 34, 60 and 90 days. The longer the lock period, the higher the cost to the borrower. As long as the mortgage closes within the lock period, the borrower gets the rate and terms that he or she has locked.
However, if the loan fails to close during the lock period, the borrower would have to either extend the lock (usually for a fee) or close the loan at the higher interest rate. Unfortunately, if interest rates have fallen, the borrower doesn’t get the benefit of that change; he or she will close the mortgage at the original rate.
Lock Period Explained
A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days. Generally, the longer the lock period, the more you pay in points or interest or there may be a separate charge for longer lock periods.. If your loan is "lockable", your lender will identify the available lock period.
Before you go through the closing process on a mortgage, you will need to lock in your rate and points. Since getting a mortgage is such a significant financial commitment, it is critical that you understand what rates and points are and what they mean for your finances.
The rate on your mortgage is a percentage of the total sum borrowed. For example, a $100,000 mortgage at a 6 percent interest rate means that you will have to pay $6,000. Interest rates accompany mortgages to offset risks and costs to lenders. After all, lending is a business and lenders must have something to gain in order for their business to be viable. But, you should be able to lock into the best interest rate possible so you can save money. Look at current interest rates advertised and before you commit, ask your lender if the rates shown are the lowest for that day or week. You should also find out if the rates you see are adjustable or fixed.
Points on a mortgage are 1 percent of the amount of the loan. By paying points, you can get a lower rate on your mortgage. You may have to decide whether to pay upfront for the points or to accept a higher rate on your mortgage. This depends on how long you are planning to stay in the house and whether you have enough cash to pay for the points. Regardless of your decision, you should compare points from different lenders and get the mortgage that best fits your finances.
Locking into rates and points just means that your lender legally commits to giving you a specified interest rate for a specified period of time. If you don’t lock into rates and points, you risk your mortgage costing you more thanyou had predicted, so be sure that you are clear about what you lock into and for how long.