When a bank offers you a rate on your home loan, it is usually good for that day only. Obviously, you will not be closing on your new home that same day, so you have to be concerned about what the rate will be at a later point.
Most lenders today offer their potential borrower?s a ?lock in rate?. They realize that it may take some time before your home is chosen and actually closed on. They also recognize that borrowers don?t like to take a risk on loan rates increasing during the period they are shopping for their loan. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. Either/or interest rates and points can be locked in.
This feature is typically available at the time of application, while the loan is being processed, or once it is approved.
If the bank offered you a 30 day lock in period for a rate of 5.5%, with one point, that is what it will remain. Even if you close in a month, and interest rates have increased, you will still get the 5.5% rate on the loan. This thirty day period is the norm, since getting all the paperwork taken care of may take that length of time. Longer than thirty days, however, and the bank will require a payment to fix the rate since they will seek to be compensated for the additional risk.
Remember that the lock in period can go against you if rates go down instead of up, unless your agreement allows you to break the agreement. Make sure your bank is willing to use to the reduced rate in case of decreased interest rates.
If you don?t close on your mortgage during the lock in period, the guarantee runs out, and you will get a new rate at prevailing rates. If rates have not changed, a lender may consider issuing a new guarantee at the existing rate.
There are mixtures in terms of lock in periods.
Both rate and points are locked in. The lender fixes both the interest rate and the number of points for a set period.
Locked in Rate, floating points. In this case, the rate may be locked, but the lender gives himself some room by maintaining the privelege to change the points charged. You may have to pay additional points to get the guaranteed rate.
If you are in a period of extremely volatile interest rates, it could be well worth your while to have a lock in period, even if you have to pay for it.
Most lenders today offer their potential borrower?s a ?lock in rate?. They realize that it may take some time before your home is chosen and actually closed on. They also recognize that borrowers don?t like to take a risk on loan rates increasing during the period they are shopping for their loan. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. Either/or interest rates and points can be locked in.
This feature is typically available at the time of application, while the loan is being processed, or once it is approved.
If the bank offered you a 30 day lock in period for a rate of 5.5%, with one point, that is what it will remain. Even if you close in a month, and interest rates have increased, you will still get the 5.5% rate on the loan. This thirty day period is the norm, since getting all the paperwork taken care of may take that length of time. Longer than thirty days, however, and the bank will require a payment to fix the rate since they will seek to be compensated for the additional risk.
Remember that the lock in period can go against you if rates go down instead of up, unless your agreement allows you to break the agreement. Make sure your bank is willing to use to the reduced rate in case of decreased interest rates.
If you don?t close on your mortgage during the lock in period, the guarantee runs out, and you will get a new rate at prevailing rates. If rates have not changed, a lender may consider issuing a new guarantee at the existing rate.
There are mixtures in terms of lock in periods.
Both rate and points are locked in. The lender fixes both the interest rate and the number of points for a set period.
Locked in Rate, floating points. In this case, the rate may be locked, but the lender gives himself some room by maintaining the privelege to change the points charged. You may have to pay additional points to get the guaranteed rate.
If you are in a period of extremely volatile interest rates, it could be well worth your while to have a lock in period, even if you have to pay for it.
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