Mortgage Rate Lock Extensions and Float-Downs
by Steve from Oceanside, NY and by Linda from Queens, NY
Ask Kate about mortgage rate lock extensions, float-downs, and lender delays: Steve's locked mortgage rate is about to expire and because he isn't ready to close, he needs to extend the expiration date. Wisely, he asks me what to expect from his mortgage company before he places his request.
Linda's mortgage lender does not allow borrowers to lock an interest rate until after appraisals are finished. This imposed delay does not sit well with Linda who is ready to lock!
Extension for Locked-In Mortgage Rate By Steve from Oceanside, N.Y.
My locked in mortgage rate is a week away from being expired.
What should I expect from the mortgage company when I ask to extend it for another 2 weeks to 1 month?
Ask Kate answers: Extension for Locked-In Mortgage Rate
Mortgage rate extension policies vary from lender to lender.
So the first step is to pull out your signed and dated mortgage rate lock agreement. This is the form that each lender must issue when a rate is locked.
In addition to the locked rate, this will tell you if your lender offers lock extensions, for how long, and whether there is a cost associated with the extension.
Rate Lock Extension Policies: Fuss vs No Fuss
Some lenders make no provisions for extending the amount of time that a rate is locked. Others will extend locks but charge for the longer lock-in period, in either a higher interest rate (believe it or not!) or a tacked-on loan fee.
Occasionally, a lender will do the right thing and willingly, without a fuss, extend a locked rate. But be prepared to assert yourself if the lender is less than cooperative.
Either way, when you initiate the process of extending your lock's expiration date, make sure you know if your closing costs, or even the mortgage rate, will increase... before you agree to the extension.
Then, assuming the terms of the extension are agreeable to you, immediately get the details in writing, including the lender's signature and current date.
Interest Rate Float-Down Policies
I also suggest looking into your lender's float-down policy at the same time you are perusing your lock-in agreement. Float-down policies allow borrowers with a locked-in rate to take advantage of lower rates before closing or when extending a rate.
Don't be afraid to ask for one! Float-downs truly do offer borrowers the best of both worlds.
But don't be surprised, even with a float-down provision, that you might not receive the entire drop in rates. For example, if rates drop .5%, your lender may only decrease your locked rate by .25%. But any drop, should the market improve, is helpful, especially when a float-down carries no associated fees!
Interest Rate Lock-In Delay By Linda from Queens, NY
My question is why do I have to wait till after the appraisal to lock in my rate as per my Lender?
I am currently in the process of having my current home appraised and also the home that I am buying.
I am not selling my current house, it's being appraised to check to make sure it has enough equity.
I don't understand why I have wait to lock in the rate till after the results of both appraisals?
Ask Kate answers: Interest Rate Lock-In Delay
Some lenders allow borrowers to lock in a mortgage rate immediately upon making loan application.
Others insist a borrower waits until they receive mortgage loan approval. Yet other banks and lenders insist on getting an appraisal first.
Ask for the Rate Lock Policy Before Choosing a Lender
All borrowers should make sure when they shop for a mortgage lender that they ask for the company's lock-in policy in writing
so that there are no surprise over delays when it's time to lock.
Why Lenders Delay Locking In Rates
But back to your question... Why do some lenders insist on knowing the appraised value of a property before allowing a borrower the ability to lock in an interest rate?
Here's why... Many lenders identify a specific investor at the time the borrower locks a rate. If the loan is not closed and delivered to the mortgage investor within the time frame of the lock, the lender is penalized.
So lenders attempt to cut their losses by making sure a home appraises for the estimated value needed before allowing locks.
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