What is a lock-in?
When applying for a mortgage from a lender, a lock-in, or rate lock, represents a guarantee from the lender to give you a certain price or interest rate on a mortgage for a given amount of time.
A lock-in from a lender locks in the interest rate of your home loan for a certain length of time. Some companies might charge for this service, but some do it for free. Regardless of whether you have to pay or not, you always should get any agreement in writing to protect yourself from unscrupulous lenders.
The most common periods of time associated with a lock-in are 30 or 60 days, but periods of 10, 15 and 45 days are also customary.
If your time period runs out before you are able to secure a mortgage, you might have to pay a higher interest rate. That’s why it’s important to have an accurate estimate of how long you expect the loan approval process to take.
If a lender charges for a rate lock, it can do so in a few ways. Some charge a nonrefundable fee upfront, while others might wait until you sign a settlement to charge a fee.
The fee varies as well, ranging from a flat fee to a percentage of the total mortgage amount. The length of the lock-in period can also affect any costs, with longer periods usually requiring a higher fee.
If for some reason your lock-in period expires, you can ask the lender about an extension. Results can vary. Some lenders do not extend rate lock periods once they expire, some charge you for an extension, and some can extend the lock-in for free.
An example of a lock-in is when you approach a mortgage lender for loan on a house. When you first start processing your loan you also might decide to lock-in the current interest rate.
If you close by the end of the time period, you get the interest rate you locked in. Otherwise, you have to get an extension from the lender or pay the new interest rate at the time of closing.