PROCESSING: RATE LOCK
Once that paperwork is done, in most cases the next step is for the lender’s licensed loan officer to lock in the rate. By that I mean that the loan officer commits that the lender will give the borrower a certain interest rate on the loan. The world of loans and mortgages is fast-paced, and interest rates can change at any time. A rate lock is important because it guarantees that a mortgage lender will give a buyer a certain interest rate, at a certain price, for a specific time. Exactly when the lender locks in the rate is going to vary. Some lenders lock it in at this point, some wait until a later time in the process. A rate lock protects the borrower from rising interest rates in the period between sales agreement execution and closing (often a month). If the buyer locks in a rate of 3.25%, he/she will only have to pay 3.25% interest even if rates rise while going through the loan application process. A rate lock is commonly good for 30, 45, or 60 days, though that time period can be shorter or longer. After that period expires, the buyer is no longer guaranteed the locked-in rate unless the lender agrees to extend it. Therefore, arranging a prompt closing is crucial. I once heard a story from a fellow lender about a woman who wanted to buy a home. She went through the pre-approval process and got a loan estimate. She then discussed rates with the lender and seemed satisfied with the terms. However, she did not get a rate lock because she was in a hurry and didn’t want to go through the process at that time.
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