Sos Roofline Systems

When you make an application for a home loan, the rate you are quoted will be the rate for that day. These terms may not be the the same as those available to you at settlement, weeks or months later.

But banks today often offer their clients a lock in period for their loan at the time of application. It is only practical to realize that there will be a delay between when the loan is negotiated and the home is closed on. The rate of interest is a critical factor in the affordability of a house, so this can be an big point. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. Lenders give lock in periods for both rates and points.

The lock in rate can be fixed at the application stage, the processing stage or the approval stage of the home loan.

Let us say you are quoted a 30 day lock in rate of 5.5% with one point. This means that even if rates go upincreased, if the borrower closed within that thirty day period, the rate would be 5.5 %. This is a normal lock in period, and many banks offer it to attract customers, and are willing to take the risk for a short period of time. However, if you want 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.

Remember that the lock in period can go against you if rates go down instead of up, unless your agreement permits you to break the agreement. This agreement is made when the lock in period is fixed.

Once the 30 day period is up, your agreement is over and you will be quoted whatever the new market rate is. If rates have not changed, a bank may be willing to issue a new guarantee at the existing rate.

There are combinations in terms of lock in periods.

Both rate and points are locked in. The bank guarantees both the interest rate and the number of points for the lockin period.

Locked Interest Rate with Floating Points. The basic rate is fixed for the period, but the bank keeps the right to change the points. You may have to pay additional points to get the guaranteed rate.

When interest rates are moving up quickly and dramatically, choosing for a lock in period is a smart move, and may even be worth paying for.