As you go through the home-buying process, you will likely encounter terminology that is new to you. One of these terms pertains to a home loan’s interest rate, called a “Rate Lock-In.”
What is a rate lock-in?
A rate lock-in, also called a rate-lock, is a lender’s promise to hold an interest rate and a certain number of points for you—usually for a specified period of time, and for a specific property—while your loan application is processed. (Points are fees that are collected by the lender in exchange for a lower interest rate.)
Why Should I Lock in a Rate?
A lock-in is useful because processing a loan application can often take several weeks or longer. During that time, the mortgage interest rates may change. If your interest rate and points are locked in, you should be protected against rate increases while your application is processed. However, a locked-in rate could also prevent you from taking advantage of decreases, unless your lender is willing to lock in a lower rate that becomes available during this period. Check with your lender to see if they allow this. If so, there may be a fee associated with adjusting your lock.
Timing your Lock-In
You can typically lock in a rate once you locate a property, and up to five days before the closing. Lock-ins are valid for a certain length of time, which could be anywhere from seven days to several months. If settlement and closing don’t occur within that time, the rate lock expires and is no longer valid.
Remember that as a borrower, you have an important role in the mortgage process. Prepare all documents that your lender requires and ensure that the house is ready for purchase by the time the lock expires. If you do not have documents ready, or if there’s something amiss with the property, the application approval process can be delayed, which can postpone your closing date.
Ask your lender for an estimate of how long it will take to process your loan specifically to help you estimate appropriate timing of your lock-in. Make sure the lock-in is valid for long enough to settle the loan. A seven-day rate lock-in won’t do you any good if you know that it will take at least 30 days to process your loan.
About UW Credit Union
This information is provided to you courtesy of UW Credit Union, based in Madison, WI. UW Credit Union is a leading provider of home loans in Dane County and throughout Wisconsin.
For more information about the home loan process, please contact a UW Credit Union Home Loan Specialist at 800.533.6773, ext. 2810, or vist UWCU.org.