Mortgage Lock-In Agreements
Fixed-mortgage rates are slowly on the rise. The historically low rates of the last few years have enticed people to purchase homes for investment purposes or to refinance their existing mortgage. With increasing mortgage rates, some lenders are recommending lock-in agreements.
A lock-in agreement freezes the terms of a loan while it is being processed. This can save homeowners thousands of dollars. The mortgage rate for March 2012 averaged 3.95% nationwide. This is a slight step up from February’s rate at 3.89%. Although small, the difference can mean hundreds or thousands of dollars on a 30-year fixed-rate loan.
Before jumping into a lock-in agreement, it is advisable to consider the following:
- The cost of the lock: Some lenders may offer a version of a lock-in agreement for free. Other lenders charge points based on the loan size. One point equals one percent of the loan amount. “The longer the lock, the more costly it is,” said Mark Lazar, an owner of Allied Financial Mortgage in River Edge, N.J. (New York Times, April 5, 2012).
- The duration of the lock: Typically, most locks are for 30, 45 or 60 days. However, it is possible to find locks that will go as long as six months.
- The closing date: If the borrower is uncertain of the closing date, a lock-in agreement may turn out to cost more. However, some lenders will refund charges upon closing.
Get a copy of the lock-in agreement from the lender. Review its terms to verify that the benefits will outweigh the costs for the borrower. If the loan is denied, the fees paid for the lock-in agreement are often refunded. However, if the borrower backs out of the deal, most likely the lock-in funds will be lost.
