Is a Lock In Period a Good Concept for Your Home Loan?
Is a Lock In Period a Good Concept for Your Home Loan?
by Fern J. Lopez
When you apply for a mortgage, you will be given a rate, but that rate is for that day only alberta mortgages. Unless you also close on that day, which is unlikely, you have to take a chance on the interest rate being higher when you do close.
Because of this concern by borrowers, most lenders now offer a lock in terms, which means you can keep the quote you are given, for a while, anyway. They recognize that the time between deciding on shopping for a home and actually finding and closing on it may take some time. The rate of interest is an important factor in the affordability of a home, so this can be an big point. Most buyers find it better to have a lock in period so they can figure their monthly mortgage payment calculation. This applies to both interest rates and points.
As a rule, banks will offer this option at any stage: application, during processing, or at approval.
Let us say you are quoted a 30 day lock in rate of 5.5% with one point. You now have the right to borrow at 5.5% even if you are not going to close on the loan for the next thirty days. Thirty days are typical lock in periods, and are given as a marketing device since the lender usually has a small risk that rates will move dramatically during a short period. However, if you prefer a longer period, you may have to pay since lenders do not want to take such a risk for an extended time without getting something in return.
This is a two way street, because if rates decrease, you may want to cancel the loan, but the agreement must allow for it calgary mortgage. Make sure your lender is willing to use to the lower rate in case of decreased interest rates.
If your loan is not settled during the lock in period, it will lapse and your new mortgage or new lock in period will be at the higher rate. If rates have not changed, you may be allowed to extend the lock in period.
There can also be a combination of lock ins:
Both rate and points are locked in. In other words, the lender will keep both the interest rate and number of points for 30 days.
Locked in Rate, floating points. The base rate stays the same, but the points may change. You may have to pay more points to obtain the guaranteed rate.
When interest rates are moving up quickly and dramatically, opting for a lock in period is a smart move, and can even be worth paying for.