Getting an Interest Rate Lock - What You Need to Know

It's kind of like the old saying, "What you see is what you get." That's what a mortgage "rate lock" or "lock-in" guarantees — that you will get the interest rate and points your lender quoted you, even while the loan is being processed.

If you ask him, your lender will lock-in, or commit to, your rate for a specified period of time when you apply for a mortgage. The advantages are obvious: You are protected from any interest rate increases. The downside is that if rates decrease, you are stuck with the higher rate.

The opposite of a rate lock is called "floating." If you think rates will drop during the mortgage application process, you can take your chances with a float and perhaps end up with a lower mortgage. Of course, the converse is true here, too: If the market pushes rates upwards, you will have a higher mortgage. Even if you opt for a float, ask your lender if you can lock-in at any time during the process period. If rates start to rise, you might be able to lock-in before they rise too much.

If you decide to lock-in an interest rate, here's what you need to do:

• First, be sure to get the terms in writing. Repeat: Get it in writing!
• Ask the lender for a lock-in form; read it over carefully before you apply.
• Ask your lender how long he thinks the loan processing will take.
• Ask if there is a fee for the lock-in, and how much. Also ask if it applies even if you do not get the loan. (The lender will usually charge higher points for a longer lock.)
• Decide on a lock-in period: Lock-in periods normally are 30-60 days, but they can be as short as seven days. If the lock expires, you will have to pay prevailing rates.
• Find out how quickly the lender can lock your rate; sometimes it takes him a few days and the rates can increase during that time. Locking-in at application time assures you get the rate immediately.