Interest rate

The cost for borrowing a lender’s money

Interest rate takes into account the lender’s risk and how much it costs the lender to get the money for a loan. The more risk the lender takes, the higher the interest rate they charge you. You pay a small portion of the interest that you owe in each monthly loan payment.


The interest rate on a fixed rate loan depends on the going market rate and how many discount points that you payup-front. An adjustable rate loan’s interest rate is made up of the index, which is an economic indicator of overall interestrates, and the lender’s margin.

Lock period

The amount of time that a lender will guarantee a loan’s interest rate

Once you have locked in an interest on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days (Normally, the longer the lock period, the more points that you have to pay up-front since the lender is taking agreater risk when they guarantee a rate for a long time).

You will need to complete your home’s purchase or refinance within the lock period. If you need extra time, you may have topay up to 1 point (1% of the loan amount) or more, and there’sno guarantee that you can keep your original interest rate after the expiration date.

See: Rate lock

Loan

A sum of money that a lender gives to a borrower that must be repaid along with interest

There are many types of loans to choose from when you are looking to buy a home. Each loan will have a different interest rate and term, which will affect how much you have to pay each month. How much you put towards a down payment will also affect your monthly payment. The three most common types of loans are fixed rate, adjustable rate, and balloons. A home loan is also called a mortgage.

See: Fixed rate mortgage, Adjustable rate mortgage, Balloon mortgage