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Mortgage lock-ins

When you’re looking for a mortgage, you should shop among lenders for the most favorable interest rate and the lowest points and other up-front charges.

Lock-ins are a way to ensure that at settlement, you get the terms you requested from your lender.

What is a lock-in?
A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time.

Depending upon the lender, you may be able to lock in your interest rate and points:

  • when you file your application
  • during processing of the loan
  • when the loan is approved
  • at a later date

Pro Con
Lock-ins protect you against increases while your application is processed. A locked-in rate may prevent you from taking advantage of price decreases during this period.

Will your lock-in be in writing?
It is wise to obtain written, rather than verbal, lock-in agreements to:

  • Fully understand how your lender’s lock-ins work.
  • Have a tangible record of your arrangements with the lender in the event of a dispute.

Obtain a blank copy of a lender’s lock-in form to read before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional.

Will you be charged for a lock-in?
Lock-in fees may or may not be refundable if you do not close your loan. The amount of the fee and how it is charged will vary among lenders and may depend upon the length of the lock-in period.

How long are lock-ins valid?
Lock-ins of 30 to 60 days are common but lock-in time periods may range from seven to 120 days. Usually, the longer the period, the greater the fee. Before deciding on the length of your lock-in:

  • Ask your lender to estimate (in writing, if possible) the time needed to process your loan.
  • Factor in any delays that might affect settlement (construction issues, etc.).
  • Ask for a lock-in with as few contingencies as possible.

What happens if the lock-in period expires?
If your lock-in period expires, you could lose the interest rate and the number of points you had locked in. In this situation, most lenders will offer you a loan based on the prevailing interest rate and points, which may now be higher due to market conditions.

This information is adapted from "A Consumer’s Guide to Mortgage Lock-Ins" published by the Federal Reserve Board and the Office of Thrift Supervision.

 

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