what are the ins and outs of locking a rate, especially since the rates have fallen and probably will fall a?

Asked by Janie, Texas Wed Jan 23, 2008

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Jim Walker, Agent, Carmichael, CA
Wed Jan 23, 2008
The opposite of locking a rate is to allow the rate to float. Loans generally have to be locked in at the time documents are drawn. This is usually a short lock of 5 to 7 days. Short locks are priced "at market"
Longer locks are priced incrementally higher. For example a 14 day lock may cost an extra one -eight of a discount point, a 30 day lock may cost an extra quarter point and a sixty day lock might cost a half a point extra.
If interest rates decline slightly - the borrower who locked misses out on the lower rate while having paid for an "insurance" of sorts against a rate hike, or If interest rates stay level, the borrower has paid for that insurance but not gained anything other than peace of mind.

If interest rates plummet deeply, the borrower can threaten to walk (to a competitor) unless they get the new rate or some compromise in between.

The lock pays off when the interest rate shoots up, for example. If you pay an extra half point for a 45 day lock and the rate goes up by half a percent, then you will have saved the percentage cost of your lock every year for the rest of your mortgage. Good Deal !

some caveats: make sure your rate lock is in writing from the funding lender.
Oh by the way if a lender goes out of business during the loan process. so does the lock.

If you want to know much much more. I just read a great book that is very consumer oriented: " Mortgage Rip-offs and Money Savers" by Carolyn Warren. I put her link below.
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