A rate commitment, more commonly known as a rate lock , is a lender's guarantee to hold a certain interest rate for you, including the points required for that rate , for an agreed upon period of time while your california mortgage loan application is being processed. Since processing can take as little as several weeks to more than a month, there's some risk that a once-reasonable interest rate can increase during in that time. That's where a rate commitment comes in: By electing to lock-in a rate, you can safeguard against fluctuations, from the time a rate lock is confirmed to the day it expires.
Lenders also allow consumers to 'float' an interest rate by actively opting not to lock in. Sure, floating a rate opens you up to rate fluctuations, but it also lets you take advantage of interest rate decreases, and avoid the fees that accompany a lock-in agreement fees that vary among lenders.
While it's true that a nominal fee is a small price to pay for a guaranteed interest rate , there are as many questions surrounding rate lock -ins as there are incentives. For one thing, there are no hard-and-fast rules regarding when a consumer should lock in. You can't say, "Always lock on a Friday afternoon." Indeed, while most mortgage loan experts will tell you speed is of the essence once you have decided to lock your rate, there are no advantages to be had from timing a lock-in.
Nor can consumers expect to find guidance in economic trends and developments. Analyzing the latest fluctuations in Treasury bonds may sharpen your skills as an armchair economist, but it may not help you make the best lock-in decision. Instead, ask yourself what the interest rate you're being offered means for your financial future and freedom.
Then there's the risk of rate lock failure what happens when your rate lock expires before the mortgage loan has been fully processed. It's not that uncommon, especially if there are unexpected delays arising from incomplete documentation. Either way, the consumer loses out on a promised interest rate , unless the lender permits the lock-in period to be extended, usually for a fee.
That's all the more reason to look beyond numbers when weighing your borrowing options. Shop for the best mortgage loan officer, not just the best interest rates. Don't choose your mortgage loan because of a flyer in the mail. You need to have a working relationship with a lender and that should be someone you can really trust.