You have most likely heard lenders and borrowers talking about rate holds and rate locks, so what exactly does this term mean?
What is a rate hold?
A rate hold protects the borrower from rate fluctuations for the duration of the hold period. This guarantees the lender will offer the borrower a specific interest rate. Once this rate has been locked in, the lender will guarantee that rate for a certain period of time. A typical rate lock period could be 60, 90 or 120 days. This also means that if the market rate rises after the rate is held and the borrower will still receive the lower rate.
What happens if the rates go down during the rate hold time?
Not a problem! If the rates go down during the rate hold period we will automatically have you pre-approved at the new lower rate. The interest on your mortgage rate will reflect the lowest rate reached within the duration of the rate hold period. This is why getting pre-approved for your mortgage well in advance of purchasing a property is a good idea.
When can a rate be held?
Buyers must typically wait until a seller has accepted their offer for the purchase for a specific property. Other information is also needed before the rate can be locked, as the rate offered to an individual borrower depends on a variety of things including: borrower’s credit score, the loan-to-value ratio, the property type and locality.
How much does a rate hold cost?
Rate holds are always free for clients! This is true, as the rate lock is not associated with any type of fee.
What happens if a rate lock expires before closing?
Lenders are not able to extend a rate lock after a period of 120 days. Therefore once the time has lapsed, they will then have to pay the current rates. One of the big things is to make sure you have firm knowledge of when you’ll be able to close.