Use Mortgage Lock In Periods To Your Benefit

By Author: Scott F. Staudt
Total Articles: 91
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Anyone who has been shopping for a mortgage for any time will be aware that a lock in period is the period during which the bank guarantees the rate and points of the mortgage loan. For instance, if you obtain a 30 day lock in for 6 % and 2 points, the bank has to honor that rate and number of points, even if the interest rates go up within that 30 day period.

On the other side, if you are not able to close your mortgage within this 30 day period, the bank is no longer bound by the lock in rate. Sometimes this is not a problem since the loan rates have not risen in the period and may even have fallen.

Most borrowers will be offered a 30 day lock in period, but it is not practical in some circumstances to find, contract on, inspect and close a house in 30 days. For this reason many buyers will opt for an added 15 days, but lenders charge extra for this.

You have to decide if the lock in period is the right choice for your circumstances. How comfortable are you with the risk of mortgage rates increasing? Or do you feel that interest rates are going to fall further because of the economy?

Most borrowers ...
... don't want to be put in the role of economists predicting the economy, so they prefer to lock in a rate for thirty days and forego the longer period charge.

With both of these advantages and disadvantages, the lock in rate also adds some pressure, since you have a short period of time to pick your house. This means you have to negotiate your mortgage and have a locked in rate before you even start shopping for a house. This time pressure makes it difficult to shop for the house and negotiate it and close in a thirty day period.

Have a fairly good idea of the type and location of house you want: this will make the shopping process easier. The good news is that most sellers are not in a good negotiating position in the current housing crunch, so that stage of the process should go quickly and smoothly. Choose a home inspector ahead of time so you can facilitate this process as well.

If you are a borrower who is just on the edge of qualifying for a loan, you should definitely opt for a lock in period to assure you the loan for at least this period. Those in such a situation risk either changes in their own finances or changes in the economy disqualifying them from a loan, so they should grab it while they can.

The point to remember is that a lock in rate is best if you think rates will rise, if you don't want to take a chance on them, or if you risk greatly increased rates because your credit is not good.
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