A rate lock protects the borrower from rising interest rates in the period between sales agreement execution and closing (often a month). If you lock in a rate of 3.25%, you will only have to pay 3.25% interest even if rates rise while you go 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, you are 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. She came back to the lender three months later to finish going through the loan origination process. However, she was shocked to find that the interest rate the lender offered had increased significantly since her last meeting. The lender had to politely but firmly explain to her that without a rate lock, there was nothing she could do. The woman ended up signing for the loan under the new, higher interest rate — all because she couldn’t spend the time to lock in that rate when she had the chance. And really, it’s not that woman’s fault she missed out on a better interest rate. These loan processing steps are complex, with many variations on the moving parts. That’s why having an excellent lender’s loan officer is paramount to your understanding and satisfaction with the process.
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