Residential Construction Loan Interest Rate Lock

by Mark
(Columbus, Ohio USA)

Ask Kate about breaking a residential construction loan interest rate lock: Hi Kate, Am I stuck or can I break my interest rate lock? I locked my interest rate for 270 days. BUT...

Mark continues... Because of the builder contribution of 4 points, I was able to lock at 4.75 percent when the market was about 5 percent (not locked).

Now that the market has trended down to about 4.5 percent (not locked), is there a way I can/should talk to the mortgage company to see if they will modify to a lower rate? I asked about float-down and they stone walled.

They have a 1 percent ($2600) deposit for the lock and their charges are steep - $5,000 of which the builder pays 1/2.

Given the extraordinary times and such low rates, I have ended up with seller's 4 points coming to naught, not to mention ending up with a higher rate than market.

Do I have leverage (law?) to do anything? It feels cruel.

This is a conventional 30 year fixed rate mortgage with 10 percent down payment and no PMI. Thanks! Mark

Kate Answers: Residential Construction Loan Interest Rate Lock

Dear Mark,

When interest rates trend upward, mortgage companies writhe in pain over lower locked-in rates. But when rates decrease, it's the borrower who feels the agony.

Pros and Cons - Locking The Residential Construction Loan

Many an uproar between homeowner and lender is caused by a Residential Construction Loan interest rate lock. I am not surprised. There is a lot at stake for both parties.

Just like you said, construction loans often require large non-refundable deposits to lock a rate. Yet with so much time between the initial loan application and closing the mortgage, we know rates have the potential to go through the sky if left unlocked.

So not locking causes anxiety. But worse than anxiety, if rates climb too high, the homeowner who didn't lock in might not qualify for the mortgage once the residential construction loan is complete.

Of course, your letter is the evidence that a mortgage rate decrease after locking also causes angst for the homeowner.

Understand Interest Rate Lock Terms Before Locking

Bottom line? Try to negotiate a lower rate. Perhaps the lender would meet you halfway between your locked rate and current interest rates.

But Mark, depending on your mortgage rate lock agreement, you might not have any float-down option. More on your mortgage rate lock agreement here.

If you can't float down to a lower interest rate, remember you were happy with the rate when you locked. But next time you get a mortgage, study your mortgage rate lock agreement and your rights before locking the rate! Here are questions to ask before locking an interest rate.

Opinions Opinions Opinions - Breaking An Interest Rate Lock

Homeowners are not afraid to voice their opinions over breaking an interest rate lock. Scroll down to Ask Kate About Mortgage Rate Lock until you see: Pros And Cons - Reader Views On Breaking Locks.

You'll find high-pitched emotions in lively discussions over these issues and more...

• Is breaking a lock fair to the lender?
• Is it ethical to leave your lender for a lower rate after locking?
• Does a mortgage lender deserve loyalty?

I have also included more rate lock help at the bottom of this page.

Best Wishes,

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Finding The Help You Need For Locking Rates

My Interest Rate Lock Guarantee - Help for timing your rate lock.

The best solution to avoiding hidden fees is to ask the right questions before you lock mortgage rates.

All about getting mortgage broker fees in writing - Otherwise your rate lock is meaningless!

How good is a mortgage interest rate lock guarantee? In the end, you have to read your lender's paperwork.

Because Yield Spread Premium is a common reason for losing your rate lock, here is the insider scoop on this odd sounding term.

Questions to Ask BEFORE You Lock

Ask Kate about locking - Ask a question and get an answer from Kate.

Search Readers' questions and Kate's answers at Mortgage Rate Lock Center

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Click here to ask Kate a question.

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