Rate locks explained
My mortgage broker told me I could not lock in
a rate until he had a signed contract. I delivered the contract
to his office. When I called the next day to confirm my rate I was
told that he was on vacation and wouldn't be back in the office
for a week. I told the girl I wanted to lock in, but she could not
When he got back, the rates were up and he told me
I had to pay 1 point to lock in where I wanted. I paid half a point
then and will pay the balance at closing. Since then rates have
continued to drop, is there anything I can do without spending more
What is required by the mortgage broker to lock in a mortgage rate
can vary by state law and by the broker's business practice. If
your state or broker requires a written rate-lock contract prior
to locking in an interest rate, then that's what needed to happen.
It's not right that he didn't have a way to allow
you to lock in a rate while he was out of the office, but there's
not much that can be done about that now. You want a written rate-lock
agreement because oral agreements aren't very useful if you have
to take the mortgage broker to court. It's unfortunate that you
lost your rate waiting for the mortgage broker to sign the agreement.
I'm a little confused about your statement that you
had to pay a full point to lock in the rate that you wanted. A rate-lock
agreement should address both locking in discount and origination
points and the interest rate on the loan. Buying down the interest
rate by paying more in discount points is an established practice
in mortgage finance, but it should be presented that way to the
borrower, not that you're paying more for your rate lock in order
to get a lower interest rate.
Rate locks are priced based on the number of days
that the borrower wants the rate lock to be in effect. Since the
rate lock needs to be in effect through the closing date of your
loan, bottlenecks in the loan approval process or purchase contract
can derail a rate lock. Most rate locks are in the 30-60 day range.
Rate locks are always a guessing game. I'll be the
first to tell you that I don't know where mortgage interest rates
will be at any point in the future. Read Bankrate's
Mortgage Rate Trend Index every Thursday for current thinking
on where mortgage rates are headed.
I will tell you that you're better off watching the
10-year Treasury note rather than concerning yourself with the Federal
Reserve's next change in short-term interest rates. You can track
the U.S. Treasury's 10-year Constant Maturity Yield on Bankrate's
Rate Watch page.
A float-down rate lock agreement is a heads-I-win,
tails-you-lose approach to locking in mortgage interest rates and
would have solved your current dilemma about wanting to finance
at a lower rate than your locked-in rate.
With a float-down agreement the borrower gets the
opportunity to lock at a lower rate if rates go down, but the lender
is held to the original rate if rates go higher. As you would expect,
because of this flexibility a float-down agreement is more expensive
than a standard rate-lock agreement.
Your rate lock agreement will address the cost to
you of breaking that agreement. Read
this Bankrate feature on breaking a rate-lock agreement before
even considering that step. If you're doing a refinancing you have
some flexibility concerning when you close on the loan, but don't
expect your current mortgage broker to be wild about the prospect
of finding you a new lender.