Locking In An Interest Rate on a Florida Home Loan
When you're shopping around for a Florida Home loan, the lender will give you a quote for the mortgage interest rate (including points, if applicable), that represent the terms available at the time of the quote. These rates, and points, may not be available by your closing date which could be weeks or months into the future. To ensure the rate and points are the same at closing as they are when quoted, you'll need to "lock-in" the interest rate (also known as a rate lock or rate commitment) covering the time from application to closing.
Floating the Interest Rate
Buyers opt to float the interest rate on a loan when they believe interest rates will drop after their loan application date and prior to closing. The risk is that rather than dropping, interest rates may rise, increasing the mortgage payment. However, an experienced mortgage banker will explain that, depending upon your closing date, locking in the rate at application can be cost prohibitive. It is entirely dependent upon your closing date and ability to qualify for the loan.
Interest Rate Lock-in Options
A mortgage lender will typically offer lock periods for 7, 10, 15, 21, 30, 45, 60, 90, and 120 days. You may select a lock-in further into the future which will require specialized pricing and additional fees. Keep in mind that the longer the lock-in period the higher the rate and points will be to guarantee your interest rate for your specified closing date. Rates that are locked in far into the future can be quite prohibitive and unfortunately if you do not close, for any reason, you may lose any pre-paid up front fees for guaranteeing the rate. And, if you "lose" your rate by not being able to close on time then your mortgage interest rate will be the "worse case" scenario. If you lose your lock commitment it is typical in the mortgage industry that a lender will require another 30 days after the lock expires before you would be eligible for the "current market rate."
The interest rate lock-in period should be long enough for the loan approval process and to allow for any other contingencies that may delay your closing. Most lenders want at least 30 days as that is usually enough time to complete the process. However, unknown complications can and do occur. Be sure to discuss all contingencies at the time you apply for the loan.
Also, be sure to ask the mortgage lenders you are considering which lock-in options they offer and obtain any lock-in of an interest rate in writing from the institution that will be funding your home loan. The only valid lock-in is one obtained from the institution providing the funds, not the local mortgage company. Be sure to ask your lender before you lock-in what costs may be charged if the loan is not closed before the lock-in period expires and their policy about "lost" rate locks.
When you lock-in your interest rate you are protected against rising market conditions on your Florida home loan, but you must close within the specified time period in order for the lock-in to be honored. If you are constructing a new home it may not make financial sense to lock-in a rate long into the future with no clear closing date. Most builder contracts contain clauses that protect them from damages if they do not close on time and you "lose" your interest rate. And, typically, though not widely advertised - most interest rate lock-ins are expensive and you may have easily obtained the best rate by just locking closer to your actual closing date without any out of pocket expenses.
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Page Authored by Benjamin Dona of Gulf Coast Associates, Realtors
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