What is Rate Lock?

Getting a fixed-rate mortgage facility is very good for the people aspiring for a mortgage loan. But the question arises of what a rate lock mortgage or an interest rate lock facility is. So, rate locks are subject to vary until the loan is paid off. A rate lock is a feature of the fixed interest rates mortgage loan that guarantees your interest rate lock for the term you choose and protects you against rate increases between the time lender receives your completed rate lock form and the day your loan is funded. If you want to use the rate lock function, you will be charged a non-refundable fee. In other words, when applying for a fixed-rate loan, a rate lock fee will be charged by the lender (up to 0.20 percent of the loan amount). Because the interest rate you applied for is fixed, you won’t be affected if rates change before your loan is funded. Therefore, one can easily say that the rate lock fee is easily affordable.

Advantage Of Rate Lock Facility

One must be clear of the rate lock facility and the rate lock fees charged. But it is also very essential to get to know about the main advantage of the interest rate lock facility. Therefore, during the home-buying process, this lock shields borrowers from the risk of increased interest rates. Some rate locks include a float-down clause, which allows the borrower to take advantage of lower market rates as they arise while still being protected from rate rises.

Interest Rate Lock Facility Works In a Smooth Way

Working of the fixed interest rates mortgage facility is super easy and the rate lock fee applicable for it is also not very high. So, before committing to a mortgage, most consumers browse around for a good lending deal with low-interest rates. They don’t realize, however, that they get the interest rate that is available at the moment their loan is advanced, not the one that is available at the time they apply.

For instance, XYZ Bank offers a home loan with a fixed rate of 5%. This rate could grow to 5.3 percent or fall to 4.7 percent before settlement. You will be charged the interest rate on the day your loan is advanced if you did not want to rate lock your loan. If the rate drops to 4.7 percent, most lenders will let you have the lower rate, but if the rate rises to 5.3 percent, you will be protected and will only pay 5%.

Facts To Keep In Mind Before Availing The Interest Rate Lock Facility

It is good to get a fixed interest rates mortgage facility. But there are some facts that one needs to keep in mind before availing of this facility. These facts are as follows –

  • Thorough research– Speak with all of the banks and lenders to ensure that you get the best rate lock option for a long period of time with no costs.
  • Communicate with your mortgage broker– This will ensure that your application is sent to the bank as soon as possible.
  • Check the duration of the rate lock-in– This will allow you to ensure that your application is on its way to being approved before the rate lock expires.
  • Proper documentation– Prepare all of your documentation ahead of time so you can submit your loan application fast after you’ve locked in your rate. This reduces the chance that the rate lock period will expire, resulting in you paying a higher market interest rate.

Rate Lock Fee Applicable

Well, the rate lock fees or the current interest rates mortgage facility applicable are very reasonable. For the rate lock option, most lenders will charge you a fee. The amount of the fee varies depending on the lender. Some charge a flat rate, while others calculate the price as a percentage of the amount you borrow. Fees from some of our lenders are listed below –

  • Lender 1: $750 fixed for up to 5 years on loans up to $1,000,000.
  • Lender 2: Either $450 or 0.15 percent of the loan amount, whichever is higher.
  • Lender 3: 0.15 percent of the total loan amount.
  • Lender 4: Provides free.

Does This Facility Have Some Disadvantages?

Every facility has some advantages along with some disadvantages. The same implies here with the interest rate lock facility as it also has some disadvantages. These drawbacks of it are as follows –

  • Some lenders charge a rate lock fee to lock in a rate.
  • Some lenders may charge you the higher (original) rate if the rates drop after you’ve locked in.
  • If your loan is refused, the rate lock charge may not be recoverable.

How to Apply For A Interest Rate Lock Facility?

It is very simple to apply for the rate lock loan facility. All you need to do is to follow the below-mentioned steps to apply for it –

  • Verify that your application qualifies for Rate Lock.
  • You must sign and send a rate lock form, as well as specify a nominated account to which the Rate Lock cost will be charged.
  • The lender will lock in the reference rate applicable on the day they receive your rate lock form.
  • Once your home loan account is set up or when they process your request (if requested later), the lender will charge the applicable Rate Lock fee to your nominated account, so make sure you have enough cash in your nominated account.
  • After the lender collects the Rate Lock fee, your rate will be locked in for 90 days, so if you settle within 90 days, your loan will fund at the locked-in rate.

Who Are Eligible For Applying For A Rate Lock Facility?

The rate lock is available for the following –

  • Applicants for a new house loan: You can choose the rate lock option as part of your loan package if you are preparing to apply for a fixed-rate home loan.
  • Refinancing: You can apply for a rate lock-in if you want to refinance your current loan.
  • New home loan applicants are also eligible for fantastic discounts, low introductory rates, and low-interest rates, particularly if they take up a three-year fixed-rate mortgage.

Worried About The Expiration Of The Rate Lock?

Are you worried about the expiration of the rate lock? Well, here is something you need to know to get a little idea about the expiration of the rate lock facility.

If your loan financing or settlement is delayed, you can request a rate lock extension for another 90 days if you want to lock in the same reference rate for another 90 days. You must request this rate lock extension before your current rate lock expires. A new rate lock fee will be applied.

If you do nothing after your rate lock expires, the reference rate on the day of loan settlement will apply. You can also request a fresh rate lock, in which case the current reference rate will be locked in. A new rate lock fee will be applied.