Mortgage Rate Locks

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When you agree with your Loan Specialist on a loan program - it's then time to lock your rate.

A mortgage rate lock is an agreement between a lender and borrower that their mortgage loan will be at a specific price.  The rate, program, points paid and length of rate lock period are locked in and committed. 
A rate lock is a financial commitment made on behalf of a mortgage company. When a rate is locked - money is spent by your mortgage lender.  Money is reserved, and you are protected against rate increases. 

You will also be provided a rate lock commitment, in writing, by ethical lenders.  The only reason your rate should change after a rate lock is if one of the items on your loan application has changed (Loan to Value, Credit, Income).

Your lender will most likely collect some money from you to cover 'some' of the costs they are incurring, like the appraisal fee, credit report, cost of initial underwriting and shipping the documents to you.  This fee is typically $445.

We sometimes have borrowers ask "What if rates drop?"  

Your rate is locked, and just like an ethically lender will not raise the rate on you if rates go up, they also cannot lower your rate. There is a commitment on both sides.

You also want to make sure that you return any documents requested by your lender in a timely fashion.  Mortgage rates are locked for a period of time - normally 30 days.  Longer rate locks are available, up to 90 days, but rates are higher for longer rate terms - thus most borrowers pick a 30 day rate lock period to keep a low rate.

If it takes longer than 30 days to close your loan - you may incur Rate Lock Penalties.  This is normally .125% to .25% of the loan amount for each additional 7 days it takes to close and fund your loan. 

Not all lenders are ethical

In some states, the law states that if a mortgage broker tells you your rate is locked, it has to be locked with a lender.  However, many brokers do not lock the loan, hoping that either rates do not change and they can make more money from your  loan with a shorter lock, or that rates go down.  If rates go up, you have the potential to be one of the mortgage nightmare stories you may have heard about - that the rate and points change at the closing table.

How can you protect yourself?

- Make sure you have a rate lock commitment in writing in your loan documents

- Check out the company at the Better Business Bureau and their State Banking Commission