Before a mortgage loan is closed, an interest rate must be locked in. There are four different parts to the rate lock:

·The loan program

·The interest rate

·Points on the loan

·Length of the lock

A long lock length means higher points or interest rates because this means a greater risk for the lender.

A typical lock would look like this: you have a thirty-year fixed rate mortgage loan locked at 8% for two points for fifteen days, finalized on January 31. Your lock will expire on February 15, or on the first working day after that day. If the lender does not disburse loan funds by that expiration date, your rate lock will expire and you will have to get another one.

A lock good for a longer period of time will have a higher point charge; this means that a slow close will cost you money. You can get a longer lock at a slightly higher interest rate instead of higher points, if you negotiate with your lender; this saves you money up front.

Upon the expiration of a lock, you can usually re-lock at either the prevailing rate and points or the original lock; rarely will you have a lower interest rate on a pre-approved loan. You may be charged an additional fee for this extension. Again, a delayed close will cost you money.

Why does the lender charge you like this? Because they lose money if your lock expires. Interest rates can change rapidly, and they are committing a loan to you that they might be able to disburse to someone else at a higher rate in a day or two. With a locked rate, they have to give you the loan at the original rate.

If you think the market is going to change fast, soon, you can negotiate for a free float-down. This is a situation where the lender gives you a better rate if interest rates fall while your rate is locked. You'll have to pay a slightly higher interest rate for this option, but if you're a gambler and things are changing, it may be worth it.