What is a "Rate Lock Period" and differences between a Lock-In Fee and Commitment Fee?
Locking It In
A rate "lock" or "commitment" is a promise from the lender to freeze a specific interest rate and a particular number of points (if any) for you for a certain period of time while your application is processed. This means your interest rate cannot go higher during your lock-in period.
Rate lock periods can be various lengths of time, anywhere from 15 to 60 days, with the longer spans usually costing more. A lender may agree to hold an interest rate and points for a longer span of time, say sixty days, but in exchange, the rate (and sometimes points) will be higher than that of a rate lock of fewer days.
Is there a difference between a“lock-in fee” and a“commitment fee”?
Yes. A number of lenders charge a lock-in fee and/or a commitment fee upon execution of the lock-in agreement and/or commitment fee. Most lenders refund these fees at the time of closing. General Regulations of the Banking Board in New York define each as follows:
Lock-in Fee: The term lock-in fee shall mean points or other fees, or discounts taken by a mortgage broker for transmittal to a mortgage banker or exempt organization or taken directly by a mortgage banker or exempt organization as consideration for the making of a lock-in agreement.”
Commitment Fee: The term commitment fee shall mean a fee, exclusive of third-party charges, imposed by the licensee or exempt organization as consideration for binding the licensee or exempt organization to make a mortgage loan or as a lender’s requirement for acceptance by the consumer of a commitment.”
The New York Interest Rate Lock-In Agreement and Mortgage Commitment Agreement specifically state under what circumstances these fees are due and under what circumstances they are refundable and liability for each only occurs upon the signing of the New York Interest Rate Lock-In Agreement and Mortgage Commitment Agreement; therefore, please read the terms of each carefully before signing and seek advice of your attorney should you have any questions with respect to your liability for those fees.
Should I lock in an interest rate or allow the interest rate to float with the market?
The choice of locking into an interest rate is entirely up to you. You may elect to allow the interest rate to float with the market which means the rate could go up, stay the same or go down depending on market conditions. If you elect to lock into a specific rate, that will be your rate irrespective of which way interest rates move; however, please note if you elect to lock into an interest rate, you must close within the agreed upon time frame. IF YOU ARE IN DOUBT OR HAVE ANY RESERVATIONS ABOUT CLOSING WITHIN THE AGREED UPON TIME FRAME, WE STRONGLY SUGGEST THAT YOU NOT LOCK IN BECAUSE NOT CLOSING WITHIN THE AGREED UPON TIME FRAME COULD MEAN ADDITIONAL FEES AND/OR A HIGHER INTEREST RATE MAY APPLY. PLEASE SEE DISCLOSURE DOCUMENTS GIVEN AT APPLICATION FOR FUTHER DETAILS.
More Ways to Get a Great Interest Rate
In addition to opting for a shorter rate lock period, there are other ways you are able to attain the best rate. You may choose to pay points to bring down your rate for the term of the loan, meaning you pay more up front. One strategy that may make financial sense for some is to pay points to bring the rate down over the life of the loan. You'll pay more initially, but you usually will come out ahead in the end.