When you “lock in”, you are requesting the lender guarantee the interest rate on your loan and the lock period is for a specific length of time – e.g. 15 days if your loan is approved and ready to have final loan documents drawn so you may close your transaction within this period of time, 30 days which covers the processing time for most conventional refinance times, 45 or 60 days for many purchase transactions which often are scheduled to close within that period of time, longer periods for loans on newly constructed housing. The longer you request the interest rate be guaranteed/locked-in, the more it costs. Say you are approved on a program that offers a 4.75% interest rate, and you are considering a 15 day lock that would have a cost of 1 point (one percentage of the loan amount) or a 30 day lock that would have a cost of 1.25 point. The longer the lock you choose is for, the higher your points may be. Depending on the loan program you are on, you may also buy the interest rate up to have lower points, or down by paying more points.
To know what the true cost of the money you are borrowing is, you will look to the APR – the annual percentage rate – which takes an average of certain closing costs and the interest rate you pay, including mortgage insurance, and average them out over the term of your loan giving you a percentage. The higher the APR percentage, the higher the costs associated with your loan. It is important you check the APR because sometimes a loan quote you have received that sounds good because it's "note rate" - the rate quoted to you - is lower than other quotes, but due to higher fees, mortgage insurance, etc., its APR works out to be higher, making it not the best deal for your long term plans.
With the closing of so many banks and lending companies over the past several months and the laying off of staff due to the market downturn, the remaining lenders sometimes have longer processing times, and this would also need to be considered when choosing the lock period. It is always good to leave a few extra days on the lock period in case there are unforeseeable delays, especially on purchase transactions. Even when you are working with the best of the best professionals on your transaction, with so many factors associated in transactions, things can happen to delay a closing. The stories I could tell after 25 years! Couriers in auto accidents on the way to the recorder’s office with documents to be recorded, sellers who pass away, closing funds that were stolen by a teller from a buyer’s bank account… situations that simply could not be controlled by the parties to the transaction.
These cases have been extreme cases, and the large majority of transactions I’ve been involved in closed on time. Careful attention, to the process and experienced professionals working together, eliminates most delays. Want more information or a free consultation about your individual goals and objectives? Call (541)608-6003 or go to http://www.quality4loans.com/ .
See you at the closing table!
Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com