Some lenders can permit you to lock in the current mortgage interest rate for six months and even up to one year. However, to allow you to do this, they usually charge a non-refundable lock-in fee of 1.25 percent for six months, and 2.375 percent for 12 months. For example, if the size of your loan is $100,000, you would be paying $1,250 for a six-month lock in.
Consumers who are planning to buy a home may want to lock in the mortgage rate for six months if they feel that interest rates are likely to go up within that period. If you think that you would be able close in 30 to 45 days, there would be no need for a lock in. Many lenders usually offer a lock in up to four months for free.
However, if for some reason, you are not able to close within three to four months, such as when the house you are planning to buy has not yet been built, you may consider paying the fee to lock in the mortgage rate. Of course, if the interest rates do not rise as you have predicted, you would have wasted the lock in fee.
For locking in the mortgage rate for up to 60 days, most lenders do not request for any additional fee. However, they may ask you to pay a certain amount in advance to make sure that the mortgage loan will close. The amount will be credited to the borrower when the loan closes. Therefore, this is different from the non-refundable lock-in fee for six months or one year.
The reason for the lock-in fee is that there is an expense for the lender when he agrees to maintain the rate for a longer period of time. This is because investors require a higher rate for their investments with the lender if the loan requires a longer period to close.
From the point of view of the consumer, locking in the mortgage rate makes sense when the rates are expected to go up. Lenders will usually provide you with a written agreement about the locked-in rate and both borrower and lender will have to sign it.