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There are generally two types of rate locks:
standard rate locks and
extended rate locks.
Standard rate locks are typically for 15, 30, 45 or 60 day periods. Some lenders offer standard rate locks of up to 90 days.
Extended rate locks are for lock terms that exceed the lender’s longest standard term. I’ve seen extended rate locks available for terms of up to 360 days.
Typically, extended rate locks require a lock-in fee which can be as much as 1% of the loan amount. Some lenders will credit this fee back to you at closing. Others won’t. In addition, the rate at which you are “locked-in” can be as much as 1% higher than the “going rate” for the same loan with a 60-day lock.
Some lenders offer an extended lock with a “float-down” feature, which means that the rate you lock in acts as a cap; if, within a certain period of time before the extended lock expires, the “going rate” is lower than the original locked rate, you can re-lock it at the lower rate.
Different lenders offer different combinations of rate lock features. You should have your loan officer go over the different features available and figure out the combination that works best for you.
When dealing with a construction mortgage, most lending institutions offer rate locks up to 12 months. Although this may seem like the proper thing to do, it may not be. If you were to lock now it would be absolutely necessary to lock for the full 12 months. Unforuntely, the longer the rate lock the higher the interest rate. Every lending institution has to off set risk by increasing the rate for extended lock terms. Even if rates go up ( in some cases ) you may still get a more favorable rate than locking for 12 months.
One very important question to ask yourself ( and know for sure ) is how long it will take you to build your home. If you believe you can build the home in three months, this would allow you to lock in for 9 months ( due to the fact you plan to build in 6 months ) If this is the case, you can lock in under a 9month lock and potentially still get a very aggressive rate. If you have any more questions, feel free to contact me.
I am closing on a house I am building in 6 months from today. How early can I lock in a rate?