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What Does It Mean To “Lock” Your Loan, and When Should You Do It?

When refinancing, one of the decisions we will make together is when to “lock” your loan.

  • What does a “rate lock” mean?
    • When we lock your loan, we are asking the lender to set aside the necessary funds and “lock” loan terms and interest rate.  In essence, think of a lock as your “RSVP”.  The lender is setting aside the necessary funds for your transaction and they are assuming the risk of rates rising during the lock period.
  • What is important to know about locking your rate?
    • The moment we lock your loan together is the moment the clock officially begins ticking.  Most rate locks come with 30, 45, 60 or 90 day terms.  The shorter the period you ask the lender to lock your rate, the more beneficial to you in terms of overall cost.
  • Why and how does the length of a rate lock affect my refinance cost?
    • In mortgage lending, most every cost factor comes down to one variable – risk.  You will generally find that the more risk a borrower is willing to assume, the better rates and terms a lender is willing to offer.  Conversely, when a lender assumes more risk they tend to counter that risk with higher costs.  In this particular case, the longer we ask a lender to guarantee an interest rate the larger a buffer they will require to offset that risk.
  • What is the smartest path for you – my client?
    • The ideal scenario for us is to have as many of our ducks in a row as possible – right now.  You see, if we have your loan file “pre-processed” this will help the underwriter expedite your file through the process.  The faster and smoother the process, the shorter “loan lock” period we can get away with – and the more money you will save overall.  In this same spirit, when and if the underwriter requires additional documentation at some point during the process – please jump on these requests immediately.
  • What happens if I commit to locking my loan and we do not close in that time period?
    • Sometimes, conditions arise that delay the process and loan locks “expire” before we can close the transaction.  In this case, the lender will typically grant an extension on the lock period – but at an additional cost.  An expiring loan lock does not typically jeopardize the overall likelihood of the loan closing.

Thanks for reading this email,  I always say that “an educated consumer is an empowered borrower” and I am going to keep the information coming your way.  If I can be of any service any time, please do not hesitate to call or email me anytime.

Did you get a rate quote from a bank or another mortgage lender?