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What is a Rate Lock?
A Rate Lock guarantees your interest rate during the rate lock period, regardless of how the
mortgage market moves, and is required before going to settlement on a mortgage loan.
Here are the four components to a Rate Lock:
The longer the length of the lock, the higher the points or the interest rate. This is because the
longer the lock, the greater the risk for the lender offering that lock.
Let's say you lock in a 30-year fixed loan at 5.00% for 2 points for 15 days on March 1. This lock will
expire on March 16. (If March 16 is a holiday then the lock is typically extended to the first working
day after the 16th). The loan funds must be disbursed by March 16, otherwise your Rate Lock
expires, and your original Rate-Lock Commitment is invalid.
The same lock might cost 2.25 points for a 30-day lock or 2.5 points for a 60-day lock. If you need a
longer lock and do not want to pay the higher points, you may opt to accept a slightly a higher rate.
(The benefit of which is keeping your closing costs low.)
If you are interested only in Zero Point quotes (which we tend to recommend), then as you look at
different lock durations, the rates would increase slightly with longer locks. For example: a 30-day
lock with no points may offer 5.50%, while a 60-day lock may be priced at 5.625% with no points.
What Happens if my Rate Lock Expires?
First we always try to close your loan within the rate lock. But, if due to extenuating circumstances
a lock does expire, a re-lock is permitted at either the original lock price or the current market price,
whichever is higher. This is why it's so important to go to settlement within the original lock period.
The better option is to have your lock extended PRIOR to its expiration. We do our best to look out
for our customers and not let their locks expire, but it's always good to have you be aware of your
lock expiration. The more people watching your lock dates the better! In many cases a brief
extension is all that's needed, and we can usually get that at no cost. If a longer extension is
needed, that can usually be had for a minor adjustment in rate, or if you prefer to hold the existing
rate, a fraction of a point usually covers the longer lock extension.
What Happens if Rates Drop After Locking-In?
Some of our lenders do offer free "Float Downs". A Float Down means you may lock a rate, and if
rates drop while your loan is in process, you can opt to "float down" and lock the better rate.
However, there are conditions: Typically if you exercise the Float Down, the new rate is locked for
15 or 30 days, and the float down rate is usually 1/8% over the current market. But it's a small price
to pay for the chance to lower your previously locked-in rate.
Even if a lender doesn't offer a Float Down, many will be open to re-negotiating your rate lock, but
only if the rates have dropped substantially (3/8% or more). That is, small changes in the market,
such 1/8% or 1/4% are normal fluctuations, and it is expensive for them to lock in your interest rate
initially. A lender has to purchase an "option" for covering the loan amount you want to lock, and
that costs money. Basically this is an insurance policy the lender buys to cover their risk should
rates rise during your rate lock. If rates rise, then the option the lender purchased should increase
in value proportionally to the loss they are taking by lending money to you at the rate you lockedt,
which would then be below the market. But the option is only good for the duration of your lock.
Once your lock expires, so does the lender's option (or insurance). And at that point it's back to
square one, which would be whatever the current mortgage market offers. But it's important to
remember that the lender has already expended money from having to buy the option to cover your
original rate lock. So if lenders let borrowers improve their locked-in rate every time the rate market
improved slightly, they would spend a lot of time and even more money re-locking interest rates,
since rates fluctuate daily. Also they would have to build this additional cost into their rates and
borrowers would ultimately wind up paying more overall. If you are concerned about your rate Lock
expiring, or about movement in the rate market since you locked-in, please discuss it with your
AmeriStar Loan Officer. He or she will gladly listen to, and address, your concerns.
Is there a Cost to Lock My Rate?
Typically, no. We offer 15, 30, 45, and 60 day rate locks at no charge, and we DO NOT require a
"Lock-in Deposit" like some other lenders do. However, for locks longer than 60 days (and that is
not common) there may be some cost involved.
AmeriStar Works for You!
We want you to know that we are always looking out for your best interests and will do what we can
to get the most favorable results for you. Please contact your AmeriStar Loan Officer with any other
questions about Rate Locks, Float Downs, Lock Extensions, or which type of lock is best for your
situation
back to FAQ
A Rate Lock guarantees your interest rate during the rate lock period, regardless of how the
mortgage market moves, and is required before going to settlement on a mortgage loan.
Here are the four components to a Rate Lock:
- Loan Program
- Interest Rate
- Points (if any)
- Length of the Lock
The longer the length of the lock, the higher the points or the interest rate. This is because the
longer the lock, the greater the risk for the lender offering that lock.
Let's say you lock in a 30-year fixed loan at 5.00% for 2 points for 15 days on March 1. This lock will
expire on March 16. (If March 16 is a holiday then the lock is typically extended to the first working
day after the 16th). The loan funds must be disbursed by March 16, otherwise your Rate Lock
expires, and your original Rate-Lock Commitment is invalid.
The same lock might cost 2.25 points for a 30-day lock or 2.5 points for a 60-day lock. If you need a
longer lock and do not want to pay the higher points, you may opt to accept a slightly a higher rate.
(The benefit of which is keeping your closing costs low.)
If you are interested only in Zero Point quotes (which we tend to recommend), then as you look at
different lock durations, the rates would increase slightly with longer locks. For example: a 30-day
lock with no points may offer 5.50%, while a 60-day lock may be priced at 5.625% with no points.
What Happens if my Rate Lock Expires?
First we always try to close your loan within the rate lock. But, if due to extenuating circumstances
a lock does expire, a re-lock is permitted at either the original lock price or the current market price,
whichever is higher. This is why it's so important to go to settlement within the original lock period.
The better option is to have your lock extended PRIOR to its expiration. We do our best to look out
for our customers and not let their locks expire, but it's always good to have you be aware of your
lock expiration. The more people watching your lock dates the better! In many cases a brief
extension is all that's needed, and we can usually get that at no cost. If a longer extension is
needed, that can usually be had for a minor adjustment in rate, or if you prefer to hold the existing
rate, a fraction of a point usually covers the longer lock extension.
What Happens if Rates Drop After Locking-In?
Some of our lenders do offer free "Float Downs". A Float Down means you may lock a rate, and if
rates drop while your loan is in process, you can opt to "float down" and lock the better rate.
However, there are conditions: Typically if you exercise the Float Down, the new rate is locked for
15 or 30 days, and the float down rate is usually 1/8% over the current market. But it's a small price
to pay for the chance to lower your previously locked-in rate.
Even if a lender doesn't offer a Float Down, many will be open to re-negotiating your rate lock, but
only if the rates have dropped substantially (3/8% or more). That is, small changes in the market,
such 1/8% or 1/4% are normal fluctuations, and it is expensive for them to lock in your interest rate
initially. A lender has to purchase an "option" for covering the loan amount you want to lock, and
that costs money. Basically this is an insurance policy the lender buys to cover their risk should
rates rise during your rate lock. If rates rise, then the option the lender purchased should increase
in value proportionally to the loss they are taking by lending money to you at the rate you lockedt,
which would then be below the market. But the option is only good for the duration of your lock.
Once your lock expires, so does the lender's option (or insurance). And at that point it's back to
square one, which would be whatever the current mortgage market offers. But it's important to
remember that the lender has already expended money from having to buy the option to cover your
original rate lock. So if lenders let borrowers improve their locked-in rate every time the rate market
improved slightly, they would spend a lot of time and even more money re-locking interest rates,
since rates fluctuate daily. Also they would have to build this additional cost into their rates and
borrowers would ultimately wind up paying more overall. If you are concerned about your rate Lock
expiring, or about movement in the rate market since you locked-in, please discuss it with your
AmeriStar Loan Officer. He or she will gladly listen to, and address, your concerns.
Is there a Cost to Lock My Rate?
Typically, no. We offer 15, 30, 45, and 60 day rate locks at no charge, and we DO NOT require a
"Lock-in Deposit" like some other lenders do. However, for locks longer than 60 days (and that is
not common) there may be some cost involved.
AmeriStar Works for You!
We want you to know that we are always looking out for your best interests and will do what we can
to get the most favorable results for you. Please contact your AmeriStar Loan Officer with any other
questions about Rate Locks, Float Downs, Lock Extensions, or which type of lock is best for your
situation
back to FAQ
Pre-Apply.com is a service of AmeriStar Home Mortgage, Inc. Information is deemed reliable but not guaranteed,
and is subject to change at any time. Use of this site for informational purposes, and does not constitute a
commitment to lend. Equal Housing Lender. © 2007AmeriStar Home Mortgage, Inc.
and is subject to change at any time. Use of this site for informational purposes, and does not constitute a
commitment to lend. Equal Housing Lender. © 2007AmeriStar Home Mortgage, Inc.
or call toll-free 1.877.PRE.APPLY
(1.877.773.2775)
(1.877.773.2775)
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