Will Your Lock-In Be In Writing?

Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Oral agreements can be very difficult to prove in the event of a dispute.

Some lenders' lock-in forms may contain crucial information that is difficult to under­stand or that is in fine print. For example, some lock-in agreements may become void through some unrelated action such as a change in the maximum rate for Veterans Administration guaranteed loans. Thus, it is wise to obtain a blank copy of a lender’s lock-in form to read carefully before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional.

It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully understand how your lender’s lock-­ins and loan commitments work and to have a tangible record of your arrangements with the lender. This record may be useful in the event of a dispute.

Will You Be Charged for a Lock-In?

Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at settlement. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction of a per­centage point added to the rate you lock in. The amount of the fee and how it is charged will vary among lenders and may depend on the length of the lock-in period.

What Options Are Available for Set­ting the Mortgage Terms?

Lenders may offer different options in establishing the interest rate and points that you will be charged, such as:

• Locked-In Interest Rate--Locked-In Points. Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be a true lock-in because your mortgage terms should not increase above the interest rate and points that you’ve agreed upon even if market conditions change.
• Locked-In Interest Rate--Floating Points. Under this option, the lender lets you lock in the interest rate, while permit­ting or requiring the points to rise and fall (float) with changes in market conditions. If market interest rates drop during the lock-in period, the points may also fall. If they rise, the points may increase. Even if you float your points, your lender may allow you to lock-in the points at some time before settlement at whatever level is then current. (For instance, say you’ve locked in a 10½ percent interest rate, but not the 3 points that went with that rate. A month later, the market interest rate remains the same, but the points the lender charges for that rate have dropped to 2½. With your lender’s agreement, you could then lock in the lower 2½ points.) If you float your points and market interest rates increase by the time of settlement, the lender may charge a greater number of points for a loan at the rate you’ve locked in. In this case, the benefit you might have had by locking in your rate may be lost because you’ll have to pay more in up-front costs.
• Floating Interest Rate--Floating Points. Under this option, the lender lets you lock in the interest rate and the points at some time after application but before settlement. If you think that rates will remain level or even go down, you may want to wait on locking in a particular rate and points. If rates go up, you should expect to be charged the higher rate.

Because practices vary, you may want to ask your lender whether there are other options available to you.