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07 March 2011

Meaning of Lock in Rate in Home Loans

Housing loans are available easily and from many loan lending institutions. Though their interest rates may sometimes differ and each have their own set of rules mostly they end up with the same procedures. This term lock in rate is used by the lender who offers loan amount to the borrower at a certain interest rate.
After discussing all the possibilities of home loans and the loan amount the most important thing to finalise is the interest rate. Here the borrower can keep negotiating and the lender also has to come up with some understanding to fix the rate. Till all the processing of home loan takes place and the formal applications and procedures are dealt with the lender has to fix the interest rate. When the borrower finally comes for the loan he can acquire loan on the predecided interest rate.
This is termed as lock in rate and this is decided prior to the application for a home loan. This totally depends on the repaying capacity of the borrower and the total loan amount. If the repaying schedule has high EMIs then the lender can offer loan on low interst rate as he is assured of quick loan repayment and recovering of the loan amount. If the repayment schedule has low EMIs then the loan tenure is more and here also  interest rate depends upon the lender. If they are assured with all the proofs and documents then they offer loans on low interst rates than if the lender has to take risk usually like in case of self employed personnel who have to prove identity and salary statements are not clear.
Whatever the negotiations before hand the borrower and the lender discuss and lock in the rate of interest the loan amount will be offered at.

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