What Are Mortgage Interest Rates “Lock Periods”?
By Bob RedtreeTips to help you understand a mortgage rate “lock period”.
Whenever a new mortgage contract is written up the client must agree to the interest rate being offered. There are times when a lower mortgage rate will be offered. It is set for a particular length of time which the clint must agree to. This is sometimes done to enable a mortgage loan to have lower initial monthly payments. When the initial period is over the interest rate will probably increase.
What is a Mortgage Interest Rate “Lock Period”?
The lock period is the length of time that the mortgage company or lender agrees to allow the client to pay a set monthly mortgage interest rate, which is usually considerably lower than the current rates. It can be for one to five years, or more. It is entirely an agreement between the lender and the mortgage client.
Why a Lock Period May Be Used
A lock period is used to facilitate the loan process and cause the beginning monthly payments to be lower than normal. This may be done for first time home buyers, young couples or others who anticipate a higher future income. This will give the new home owners time to wait for the higher income and the resources they need to pay a higher rate of interest.
What Happens When the Lock Period is Over
At the end of the lock period the mortgage contract is redone. It is not the same as a refinance. It is simply recalculated using the current rate that is offered by the lender. By this time the client should be financially stabilized so they are enabled to make larger monthly payments. The agreed upon interest rate will now be used for the balance of the life of the loan term.
Related posts:
- Should I Lock In A Mortgage Interest Rate?
- What Happens If I Don’t Lock My Mortgage Interest Rate?
- What If I Decide Not To Lock In A Mortgage Rate and Rates Increase?
- When Is The Best Time To Lock In A Mortgage Rate?
- Should I Lock In A Mortgage Rate If I Am Not Ready To Buy?