Many borrowers opt to lock in mortgage rates when buying a home or refinancing to help protect themselves against any sudden increases in interest rates while the loan is being processed.
And with rates on the rise, lenders have reported an increase in lock-in agreements in recent weeks. However, in 2010, the average mortgage took 52.1 days to close, according to J.D. Power and Associates.
While most rate locks last from 30 to 60 days, more and more borrowers are finding their lock-in agreements are expiring before they've been able to make it to the closing table.
Borrowers often can arrange for an extension of their lock-in agreement, although they might have to pay extension fees.
While most mortgage brokers do not charge money to extend a lock-in agreement, some borrowers who deal directly with lenders may have to pay anywhere from 0.10 to 0.25 for a percentage point of the loan amount for a 15-week extension (e.g. $400,000 loan could mean $400-$1,000 in fees).
Irene Amato, the owner of the A.S.A.P. Mortgage Corporation in Cortlandt Manor, N.Y., told The New York Times that she suggests borrowers take out a lock-in agreement for 60 to 90 days, especially when refinancing which has faced a backlog of applications and often takes longer than a purchase mortgage.
Experts also recommend having a real estate attorney review any lock-in agreement, since the agreements can differ greatly among lenders. For example, some lenders require a borrower to have a specific property chosen before they can lock-in a rate, while others do not. Also, some lenders offer 60-day lock-in agreements without any fee, while others charge based on the size of the loan.
Source: When Mortgage Rate Locks Expire, The New York Times (Jan. 9, 2011)