What Happens If My Rate Lock Expires?

Question

What Happens If My Rate Lock Expires?

Answer

This is a loan officer’s worst nightmare beyond missing to lock a rate. To review what is a rate lock and what is involved in locking a mortgage interest rate, please review What Is A Rate Lock.
Next, let’s look at what happens if your rate lock expires. When a rate lock expires this typically means that the new mortgage loan did not close or fund on time before the lock expiration date. It also generally means that whatever interest rate you were locked in at will not be the guaranteed rate that you’ll get when your loan finally does settle.

Interest Rates Are Going Up And My Lock Expired
If mortgage interest rates have gone up – this is bad. It is bad because you will most likely be getting a higher interest rate on your mortgage than you were expecting. A higher interest rate means a higher mortgage payment. This may mean that your loan qualification could be in jeopardy if your debt to income ratio now exceeds the guideline limits for your original loan approval and loan program.
When interest rates are increasing, it is extremely important to get your mortgage completed before the end of the lock period. Investors are not very forgiving when a loan officer misses the interest rate lock expiration date and what will most likely happen is that your loan will have to be relocked at a higher interest rate.

Interest Rates Are Going Down And My Rate Lock Expired
If mortgage interest rates have done down when your rate lock expired – this is good. It is good because your loan officer ought to be able to offer you a better interest rate than you were originally going to get. When this happens your mortgage payment will go down.
Investors do not like missed rate locks no matter what direction interest rates are going. You will have to speak to your loan officer about your loan if your rate expires with interest rates going down to work something out with them. It is likely that you can get a lower rate, but you may not be able to get as low as the market is offering with that particular lender. Lender’s will only bend a lot in your favor if interest rates have dropped a lot.

Extend The Rate Lock With An Extension
If you know, or your loan officer knows that you are coming to the end of the rate lock period your loan officer can ask for some type of rate lock extension. Typically extensions are only good for a few days, perhaps as long as a week. This is where it pays to know when your rate expires so you can communicate with your loan officer about an extension etc. It also let’s your loan officer know that you are paying attention and they need to stay on their toes too.

Rate Extensions Can Cost You Money
Sometimes, to extend a rate the lender will charge a fee. You may be wondering who pays the fee on a rate extension. There is no one way to answer this question with just one answer. There are several ways of handling who pays a rate lock extension and it all depends on the company policy of the mortgage company you are working with.
In paying the extra fee I have seen several ways of handling it. The first place to look is who caused the loan to be delayed. If it is the lender, typically they can and do grant free extensions – this is especially true if they know that they are close to the end of the loan. Generally if the lender is really busy and they just can’t get your loan through final approvals once it has been underwritten the first time the lender will most likely grant a free extension.
But, if the delay is because your loan officer submitted incomplete information, or because you took a very long time to submit your paperwork back to your loan officer, the lender will probably not grant a free extension. In this case, it will end up either costing you more money in the form of a higher interest rate or in closing costs, or your loan officer in their commission.

Depends On Company Policy
My experience has been if my company caused the delay then I would usually have our company pay for it. If my borrower caused the delay for their slow response then I would have them pay for the extension, or we would relock the loan at a little higher interest rate at the current market conditions. Sometimes I would split the difference with the borrower depending on the situation. Again, to figure out who or how to pay for a rate extension it depends some on company policy and it takes communication and understanding to work it out.