When you are looking for mortgage rates, you have to realize that the terms you are quoted represent the terms available at the time of the quote. Usually, you don?t close on the exact day you are asking about rates, so you will have to take a chance that the rate will go up.
Because of this worry by borrowers, most lenders now offer a lock in terms, which means you can maintain the quote you are given, for a while, anyway. They recognize that the time between deciding on shopping for a home and actually finding and closing on it may take a while. Many people count on the interest rate when they calculate how much their monthly mortgage costs will be. So a lock in period can be negotiated with the lender, which will keep the rate the same for a certain length of time. Banks offer lock in periods for both rates and points.
Generally, lenders will offer this option at any point: application, during processing, or at approval.
If the bank offered you a 30 day lock in period for a rate of 5.5%, with one point, that is what it will remain. What this gives you is the right to keep that rate, even if you do not close on the loan for an additional 30 days. Thirty days are usual lock in periods, and are offered as a marketing device since the bank usually has little risk that rates will move too much during a short period. Longer periods can also be obtained, but usually are priced more, since banks are not going to risk rates moving against them for a longer period without being compensated for the risk.
Remember that the lock in period can go against you if rates go down instead of up, unless your agreement permits you to get out of the agreement. This term is made when the lock in period is fixed.
Once the 30 day period is up, your agreement expires and you will be quoted whatever the new market rate is. If rates have not changed, a bank might consider issuing a new guarantee at the existing rate.
You can have a combination of lock ins:
Locked in Interest Rate with Locked in Points. Both interest rate and number of points are fixed.
Locked in Rate, floating points. The underlying rate is fixed for the period, but the lender keeps the right to increase the points. You may have to pay more points to get the guaranteed rate.
When interest rates are moving up quickly and drastically, choosing for a lock in period is a smart move, and may even be worth paying for.
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