Mortgage Closing Costs and Rate Lock Policies

by Dee in Napa, CA, Ralph in Rochester, MN, and...

Mortgage closing costs, rate lock policies, and yield spread premiums are joined at the hip in your home loan process. Will you be required to pay rate lock fees if you cancel your refinance? What about yield spread premiums? If you don't understand your Good Faith Estimate, it could cost you big-time!


Question 1: Closing Costs and Paying Rate Lock Fees

By Dee from Napa, California

Help. I can't sleep, very nervous about what we are doing and feel alone. We are in our late 60's but my husband still works.

We are in the middle of a refi. We are worried about our fees and think they are very high for our Harp 2 refinance. Our loan is with same broker and same house as when we got first Freddie Mac three years ago. Our credit score is 767. Our loan now is 4.5% but will change with this refi.

Origination fee: $1500
Points: $563
Loan amount: $560,000
Interest rate: 3.99%

Am I buying down this loan? Looks like it.

Title fees in CA: $909
Lenders title insurance: $1558

Will I have to pay lock fees if I do not take this loan? Should I? Can the fees be lowered?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Closing Costs and Paying Rate Lock Fees

Hi Dee,

Don't assume that by returning to the same broker, your mortgage closing costs will automatically be lower.

You should not feel awkward about asking your broker to go line-by-line through your written Good Faith Estimate, until you either feel comfortable with the charges or decide to shop other lenders.

In other words, paying attention to your gut-feeling is important!

Here is the difference between the origination fee and discount points. The origination fee pays for the processing of your refinance. But discount points buy you a lower-than-market rate and vary moment by moment at the whim of Wall Street until your interest rate is locked.

To compare origination fees and discount points, you would need to check rates at another lender for the day and time you locked in your mortgage rate. Doesn't feel so easy? No kidding! This is why I advise, Buyer Beware!

You can learn how to develop a gut-instinct at Does No-Cost Mortgage Refinancing Truly Exist. You'll also learn about negotiating lower closing costs!

To find out if you are being charged a legitimate fee for the title insurance premium, either call your title insurance company or request a copy of the preliminary title report to see for yourself!

If you decide to cancel your refinance, you ask if you should have to pay a rate lock cancellation fee? In my opinion, NO! But in the end, it depends on your mortgage rate lock agreement that you signed.

What? You weren't given one to sign? If so, how can they enforce collection of a cancellation fee! Big no-no on the side of the mortgage company.

Good luck and best wishes,

Ask Kate

Question 2: Mortgage Closing Costs and Rate Lock Policies

Hi Kate, I have a couple of questions for my FHA loan refinance of $417,000 about locking in the rate and closing costs.

1. My broker says lender is offering 3% credit and it is listed as a yield spread premium in the Good Faith Estimate. She is suggesting to use this for closing costs, however I am worried I am paying higher interest rate for this credit.

Is she obligated to disclose the rate lock information and rate options I have to choose from when the lock was performed? What should I ask her?

2. I was told that I was locked for 3.0% on a 15 year refinance - things did not work out and I wanted to get a 30 year loan after a few days of the lock for 15 year. Surprisingly I was told that they need to check the rates for 30 year loan on the day and time the lock for 3.0% 15 year loan was done.

I thought a lock is for a specific interest rate and loan program only? Shouldn't they be locking me again for 30 yr loan?

3. My broker is charging 1.5% as origination fee. Is that high? I thought in general it is 1%?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Mortgage Closing Costs and Rate Lock Policies

A yield spread premium (YSP) is a credit to either the borrower or the mortgage company in return for a higher-than-market interest rate.

1. Why would a mortgage company suggest increasing a mortgage rate to collect a YSP? Perhaps financing your origination fee would increase your loan amount and create an unacceptable loan-to-value (LTV).

Or maybe adding closing costs to your loan amount pushes it too high for your specific loan program.

Ask your mortgage originator why you were not given the choice to decide between a lower mortgage rate and either financing your closing costs or paying them out-of-pocket. And yes, of course you have the right to see the different levels of pricing on the day your rate was locked.

After all, it's YOUR mortgage! In fact, you should insist on having the terms of your lock in writing.

2. The re-lock policy your bank described does not sound unusual to me. But your options should be spelled out in the written lock-in agreement. Verbal explanations do not protect you. In fact, lending institutions and brokers are required to disclose costs and lock terms in writing.

3. Origination fees, I would say, customarily are 1%. Mortgage origination fees should be quoted in the Good Faith Estimate, then signed by the loan originator and you. But this must be re-disclosed on the day of locking the rate in.

Ask your originator why yours is higher than 1%. Then come back here and leave the response in a comment on this page. I'm sure other homeowners would be interested in knowing the outcome.

Go here for questions to ask a lender before locking your mortgage rate lock.

Best wishes,

Ask Kate

Question 3: Expired Rate Lock... Does my bank really lose money?

By Ralph from Rochester, Minnesota

Kate, I locked-in (55 days) for a 30 year fixed mortgage on a vacation property with my bank. Because of legal issues, the purchase won't close before the lock expires next week.

The rate has dropped 0.375 since I locked. I think I should be able to originate a new loan at the lower rate (and lose my $500 paid for the lock-in). My bank refuses to do that but offers a "no fee" extension of my lock.

They claim they will lose thousand of dollars if they don't close the loan at the original lock rate. I suspect they are the loan originators (as opposed to a broker) but I know they commit their loans to the secondary market the day the lock is made.

So would they really lose money, or are they just wanting to make more money because they can sell my loan at a higher spread premium?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Expired Rate Lock... Does my bank really lose money?

Hi Ralph,

You are asking the million dollar question, I'm afraid. It could be either.

Depending on their rate lock policy with the investor, they may truly lose money if they use a different day's rate for re-locking, although how much is anyone's guess.

Offering a no-cost lock extension is not a bad deal, either way. I've seen much worse policies. Why not ask them specifically about your suspicions? Not that I'm confident that you'll get a straight answer but it will serve notice that you are not one to mess with!

Go here for more Mortgage Rate Lock Talk.

Best wishes,

Ask Kate

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