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Locking in the Rate

In many areas of the country, lenders allow you to lock in the price (i.e., the rate and points) of your mortgage w hen you apply. Lenders may require payment of a commitment or lock-in fee, especially for refinance loans or rate locks exceeding 60 days. Others set the rate and points for your loan after you have been approved or shortly before the day of settlement. During times of heavy refinancing volume, some lenders may require that you lock in a rate at the time of settlement and pay a nonrefundable commitment fee.

The major benefit of shopping for a loan is to lock in the best rate available for the product that you select. If lenders in your area will not let you lock in a rate and points when you submit an application, shopping for a low-priced loan becomes more difficult. You must look for a lender with a reputation for low rates.

If you do lock in the price of your loan, get a written statement from the lender that clearly spells out the rate, points, other fees, and conditions of the lock-in agreement. An oral promise is not enough to protect your interests.

The purpose of a price (rate) lock commitment is to protect you from a rate increase that might occur between the time that you apply for your mortgage and the time that you go to settlement/closing. What happens if rates fall during that period? If you have gotten a commitment at a higher rate, you are generally stuck with it. You can ask your lender for the lower rate, but do not expect to get it.

Some lenders offer a special rate lock commitment that protects you from rising rates and allows you to get a lower rate if rates fall. Lenders often charge a larger fee for this kind of commitment. If you think that rates may go down, ask your lender if it offers this kind of commitment.

Within three business days from when you file an application, lenders are required by truth-in-lending laws to mail you a disclosure of the annual percentage rate (APR) for your loan. You also will receive a booklet prepared by the U.S. Department of Housing and Urban Development called A Homebuyer's Guide to Settlement Costs and an estimate of your settlement costs.

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