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A lock-in is a lender’s promise to hold an interest rate and points for you for a specified period of time. Depending on the lender, you will lock in the interest rate and number of points you agree to pay either at time of application, during processing of the loan, at time of loan approval, or later.
A lock-in at application may be useful when interest rates are on the rise. Without a lock-in, rising interest rates during the application process could increase the cost of your mortgage. If interest rates are falling, it might be best to wait until after application approval to lock in.
Lock-in agreements come in many forms. Some lenders have pre-printed forms that state the agreement in exact terms. Others lock in by telephone at the time of application. Some lenders’ lock-in forms may be difficult to understand, so it’s wise to obtain a blank copy of a lock-in form to read or show to your attorney before loan application.
Unfortunately, lock-ins aren’t always free. Some lenders charge up-front fees, which may or may not be refunded upon application withdrawal or denial, or if the loan fails to close for some other reason. Other lenders charge the fee at settlement. The fee may be a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point added to the lock-in rate.
Lock-ins are good for a certain interest rate and number of points for a given number of days — 30–60 days is common — during which you must settle on the loan. Some lenders offer short-term lock-ins, good for seven days after loan approval.
Consider the following before making your decision:
1) Does the lender offer a lock-in of the interest rate and points?
2) Will the lock-in be in writing?
3) When can you lock in rates and how long will the lock-in be valid?
4) Does the lender charge a fee for a lock-in?
5) If you have locked in a rate but interest rates go down, can you lock in at the lower rate? Is there an additional fee for that?
6) Can you float your interest rate and points now and lock-in later?
7) What is the lender’s average time for processing loans?
8) Has the lender’s loan volume increased? Heavy volume can mean slow turnaround or weak customer service.
9) What rate will be charged if the lock-in expires before settlement?
10) If you don’t settle within the lock-in period, will the lender refund the application or lock-in fees?
11) If your lock-in expires, will there be an additional fee for the second lock-in?