Is a Lock In Period a Good Idea for Your Home Loan?
Is a Lock In Period a Good Idea for Your Home Loan?
by Fern J. Lopez
When you make an application for a home loan, the rate you are given will be the rate for that day. Usually, you don’t close on the exact day you are asking about rates, so you will have to take the risk that the rate will go up.
Most lenders nowadays offer their prospective borrower’s a “lock in rate” alberta mortgage brokers. They understand that there is usually a period of time between when the mortgage application is made and the loan can be settled. The rate of interest is a critical factor in the affordability of a home, so this can be an important point. Locking in a rate for a length of time frequently proves to be advantageous for a borrower. This applies to either interest rates and points.
The lock in rate may be fixed at the application point, the processing stage or the approval stage of the home loan.
An example is if a lender gave you a lock in rate for thirty days at 5.5% interest with one point. Now, even if rates go upincreased, if the borrower closed within that time frame, the rate would be 5.5 %. This is a generally common lock in period that banks offer to attract customers calgary mortgage brokers. Longer than thirty days, however, and the lender will require a payment to hold the rate since they will seek to be compensated for the additional risk.
Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates actually decrease, unless you have an agreement that prevents this from occurring. This agreement is agreed upon when the lock in period is set.
After the 30 day period, of course, the rate will go back to whatever the current market rate is. If there have been no significant movements in rates, the lender may be willing to renew.
Lock in periods cover a number of mixtures of terms, as follows:
Locked in Rate, locked in points. Both interest rate and number of points are guaranteed.
Rate is locked, points are not. The lender may choose to protect itself by setting a fixed base rate for the lock in period, but maintaining the right to change the points to keep the rate. This permits them to charge more points if they want.
In a volatile interest rate environment, it is extremely wise to choose a lock in period, and perhaps even pay a slightly higher interest rate for a longer period.
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