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Main
Points on Rate Lock
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Here is some more
information on rate locks:
- On
home purchase transactions, the lock-in period
ranges generally from15 to 90 days. In cases where
a home is being built, however, it may be longer,
while on refinance transactions it may be shorter.
If the loan is not closed within the stipulated
period, the protection expires and you either have
to accept the terms quoted by the lender on new
loans at that time, or start the shopping process
anew.
- If
you elect not to take lock-in protection, the
rates and points "float", meaning that
they change daily with the market. In this case
you end up paying the rates and points prevailing
at the time the loan closes, which could be higher
or lower than they were when you started the
process.
- A
lock-in should thus be viewed as an insurance
policy. If you barely qualify for the loan you
need at current rates, so that a rate increase
might force a major change in your plans, a lock
is cheap insurance.
- Locks
are risky to lenders and the risk is greater as
the lock-in period gets longer. If interest rates
rise, a locked loan will usually close at a loss
to the lender, but if rates decline many borrowers
will seek a lower rate by starting the process
over again with a new lender. Losses to the
lender from rising rates, therefore, are not
offset by gains from falling rates. For this
reason, and this confirms your suspicions, lenders
always charge for a lock.
- The
bottom line, therefore, is that you will usually
get the best deal from the lender who offers the
"free" protection that corresponds to
your needs.
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