What Is A Rate Lock-in?

A rate lock-in is sometimes also referred to as a rate commitment or simply as a lock-in. It is basically a lender's guarantee that he or she will hold a certain interest rate and points for you for a given period of time as your loan application is being processed. In reference to points, they are extra charges that are often pre-paid to the lender by the consumer; one point is the equivalent of one percent of the amount of the loan. The rate lock-ins vary from one lender to the next; certain lenders may allow you to lock the interest rate as well as the number of points that you are charged during the time of filing your application, the processing of the loan, and when you are approved for the loan.

A rate lock-in is often useful, as it will definitely take your lender a few weeks or even a month to prepare or the proper documentation and evaluate your application. As a consumer, you want to make sure that your rate is protected from increases during this time since you never really know what will happen to interest rates. Despite this the cost of your mortgage might change. It is important for you to protect this rate as an increase in rates could mean that you can no longer afford your mortgage. On the other hand, if your rate is locked in then this will stop you from taking any price decreases except if your lender locks in a lower rate to begin with. You must understand that a loan commitment is not the same thing as a rate lock-in even though a number of loan commitments do have a lock-in. A loan commitment refers to a lender's guarantee that you will get a loan in a specific amount at some time in the future. Keep in mind that this guarantee doesn't say anything about interest rates. Most of the time you will only get this guarantee after your application is approved. The loan commitment you receive will include all the terms of the loan that have been permitted, how long this commitment is valid for, and the conditions under which the lender is making this loan such as an insurance policy protecting the lender.