Can a borrower lock in the interest rate on HECM mortgages?

FHA will allow for mortgage lenders to set the expected interest rate for Home Equity Conversion Mortgages (HECM) at the time the loan application is signed by the borrower rather than on the date of closing. Mortgagee Letter 06-22 revises the instructions found in the section 'Requirements for Closing' contained in Chapter 6, page 6-7 of HUD Handbook 4235.1 REV 1.

This interest rate 'lock-in' provision, which mortgage lenders may offer on each HECM application for 120 days, will eliminate confusion and unexpected reductions to a HECM borrower's principal limit when market interest rates increase during the interim between loan application and loan closing. The effective/commencement date of the 120 day lock period shall, in all cases, be the first day following the date of case number assignment through FHA Connection.

Mortgagee Letter 06-22


All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-03359