Dear Mortgage Examiner,
I recently applied for a refinance loan with my lender and was told my rate would be 4.75%. But when it came time to close, the lender said that my rate had gone up to 5% because my rate lock had expired. When I complained he said that I could keep the original 4.75% rate I applied for but that I would have to pay points – about 1/4% of my loan amount of $377,000 ($942.50) – to do so.
What happened? What does it mean that my rate lock expired? Most importantly, what should I do?
I feel your frustration. This is a circumstance that many borrowers have faced and would guess that most of them don’t understand why. Before we can determine what may be the best option for you we should understand what a rate lock is and why it is used in the mortgage industry.
Mortgage interest rates increase or decrease every single day. If financial markets are particularly volatile interest rates can even rise or fall more than once within the same day. To guard against this volatility lenders offer borrowers the option to ‘lock in’ or guarantee a particular interest rate and loan fees for a certain period of time. The usual time period is 30 days because that is about how long it takes most lenders to close typical mortgage loans.
In your case, Cindy, ‘what happened’ is that your loan did not close within the time period that the lender was holding your interest rate for. An expired rate lock means that the interest rate and fees of the loan you originally applied for are no longer available for the lender to offer to borrowers. The lender can no longer afford to offer the same loan terms to you that were offered when you originally applied because now the cost of borrowing the money the lender would use to fund your loan has increased. The lender is simply passing these costs on to you by offering the loan at a higher interest rate or increased closing costs.
What you can do (we’ll address what you should do in a minute) may depend on why the rate lock expired in the first place. If the rate lock expired because the lender was slow or negligent in processing your loan you may have some negotiating room. You would most likely have to speak with your loan officer’s manager for any adjustment to the fees or rate they are offering in the extension. If the lender agrees that at least some of the fault for the delay lies with them they may be willing to reduce the cost of the extension or waive it altogether.
However, if the delay is because, for example, you were on vacation when the lender tried to reach you to obtain documents from you, or perhaps you waited an extra week to schedule the appraisal because you wanted to clean up the house first, then there probably isn’t much recourse for you. The lender made every reasonable effort to process and fund your loan within the rate lock period but was prevented from doing so because they didn’t have the documentation they needed in time to do so.
What you should do depends on whether you would be better off starting all over again with another lender. That’s not very likely since interest rates are continuing to climb. In fact, you’ll probably be offered a higher rate now by another lender than the new rate your original lender is offering by asking you to agree to a rate lock extension. If the rate offered in the extension still saves you money each month you are probably best served by accepting it and closing the loan as quickly as possible.
Because, yes Cindy, rate lock extensions also have an expiration date.