Friday May 19, 2017

Guide to Rate Locks

Locking your interest rate gives you the best chance of receiving what you spent all that time shopping for.

Generally, the terms you are quoted when shopping among lenders represent the terms available to borrowers who are closing their loans immediately.

The quoted terms you receive may not be the terms available to you at closing; weeks or even months later.

Because of this you should not rely on the terms quoted to you when shopping for a mortgage loan unless the lender/loan officer is willing to lock-in the interest rate for you and this rate lock guide will help you do that.

What is an interest rate lock?

Rate locks, lock-ins or rate commitments, are a lender’s promise to hold a certain interest rate at a specified cost, usually for a certain time period, while your loan application is being processed.

Depending upon the loan officer, you may be able to lock in the interest rate and cost you will be charged when you file your application, during processing of the loan or when the loan is approved.

A rate lock given to you at the time of application may be useful because it’s likely to take your mortgage lender several weeks or longer to document and evaluate your loan application.

During this time, the cost of mortgages may go up or down.  But if your interest rate and cost are locked in, you should be protected against increases while your application is processed.

Keep in mind, if the lender finds information which is different then your original application the interest rate lock could well be voided and cause your interest rate and cost to go up substantially.

If you lose the rate lock you may not be able to afford the higher interest on the mortgage and thus lose the mortgage and the house you're purchasing.

However, a locked rate could also prevent you from taking advantage of price decreases, unless your lender is able to lock in a lower rate that becomes available during this period. Keep in mind most loan officers/lenders are not able to lower your interest rate once you've signed a rate lock commitment.

It's important to recognize that a lock-in is not the same as a loan commitment.  A mortgage loan commitment is your lender’s promise to provide you with a loan up to a certain amount at some point in the future.

Generally, you will receive a loan commitment from a loan officer only after your application has been approved.  This loan commitment will usually show the loan terms which have been approved, including the loan amount.

How long the commitment is valid, and the lender’s conditions for making the loan such as receipt of a satisfactory appraisal.

Will my rate lock be In writing?

Only a few lenders have specific forms that set out the exact terms of the lock-in agreement.  So, if they don't offer one upfront, ask them to fill out and sign one or you'll need to take your business elsewhere.

Others may only make a verbal lock-in promise on the telephone or at the time of application.  Verbal agreements are very difficult to prove and if there's a dispute the loan officer will undoubtedly win, since there's nothing in writing.

Some lenders rate lock forms can contain information which is difficult to understand or even hidden in the fine print.  It's always a wise decision to obtain a blank copy of the loan officers rate lock form to read carefully "before" you apply for a mortgage loan.  If at all possible, show the rate lock form to a real estate professional or lawyer.

Buyer beware, it’s essential to stay on top of your interest rate lock and to make certain you have the interest rate and terms in writing. Never assume the loan officer has locked your interest rate or it’s locked, but in actuality they are floating your interest rate hoping to get a better rebate.

One of their better schemes is to misquote the interest rate in hopes the rate will come down to what they originally quoted you, if it never does they simply try to charge you more right before closing.

We've seen it happen so many times with some loan officers or brokers even altering the original terms they quoted you such as raising the margin, adding a prepayment penalty, or changing indexes, caps, or even loan programs without the borrowers knowledge.

Will you be charged for a rate lock?

Generally mortgage lenders do not charge a fee for locking in the interest rate for your mortgage.  Some loan officers may try to charge you a fee up-front, these loan officers should be avoided at all cost.

One of the few times a legitimate fee is charged is when a mortgage borrower needs to have a longer than normal rate lock.

How long are rate locks valid?

Usually the lender/loan officer will promise to hold an interest rate for a given number of days.  To get the predetermined interest rate you must close the loan within that time period.  Rate locks of 30 to 60 days are the most common.

Lenders that charge a lock-in fee may charge a higher fee for the longer rate lock period.  Usually, the longer the period, the greater the fee.

The rate lock period should be long enough to allow for closing.  Before deciding on the length of the rate lock to ask for, have your your lender estimate (in writing, if possible) the time needed to process your mortgage loan.

You'll also want to take into account any factors that might delay the closing of your loan.  These may include unanticipated construction delays if purchasing a new home.

What happens if the rate lock expires?

If you don't close your loan within the lock-in period, you might lose the interest rate you locked.  This could happen if there are delays in processing whether caused by you or not.

On occasion, lenders are themselves the cause of processing delays, particularly when loan demand is heavy.  This happens most often when interest rates fall suddenly causing the amount of refinances to skyrocket.

If your rate lock expires, lenders could offer you the mortgage loan based on the prevailing interest rate.  If market conditions have caused interest rates to rise, you will most often be charged more for your loan.

One reason why some mortgage lenders may be unable to offer the interest rate after the period expires is they can no longer sell the loan to investors at the lock-in rate.

When lenders lock in loan terms for borrowers, they often have an agreement with investors to buy these loans based on the rate lock terms.  The agreement may expire around the same time that the rate lock expires and the lender may be unable to afford the same terms if market rates have increased.

How can you speed up the approval of the loan?

While the lender has the biggest role in how fast your loan application is processed, there are many things you can do to speed up approval. Try to find out what documentation the lender will require from you in advance.

Much of the information required by your lender can be brought with you when you apply for a mortgage loan.  This may help to get your application moving quickly through the loan process.

Once you're done shopping for rates and have decided on a lender, be sure to bring the following documents:

  1. Purchase contract for the home you're buying (if you don't have a copy of the contract, check with your real estate agent).
  2. Your bank account numbers, the address of your bank branch and your latest bank statement, plus pay stubs, W-2 forms.
  3. If you are self-employed bring your balance sheets and tax returns for the previous 2 years.
  4. Information about debts, including loan and credit card account numbers and the names and addresses of your creditors.
  5. Evidence of your mortgage or rental payments, such as cancelled checks or mortgage statements.
  6. You'll need your VA Certificate of Eligibility from the Veterans Administration if you want a VA-guaranteed loan.  Your lender should be able to help you obtain the certificate.

Be sure to respond promptly to your lender's requests for information while your loan is being processed. It is also a good idea to call the lender and real estate agent from time to time.

It's always a good idea to keep notes on your contacts with the lender so that you will have a written record of your conversations.

Asking about rate locks

When you're ready to settle on your loan, you'll want to get the loan terms that you've locked in. To increase the likelihood, it's important to learn as much as you can about what the lender is promising you before you apply for a loan.

Ask for this additional information when you're shopping for a loan:

  1. Does the lender offer a rate lock of the interest rate?
  2. When will the lender let you lock in the interest rate?  When you apply?  When the loan is approved?
  3. Will the rate lock be in writing?  If the rate lock is not in writing, you will have no record of the lender's agreement with you in case of a dispute.
  4. Does the lender charge a fee to lock-in the interest rate?  Does the fee increase for longer rate locks? If so, how much?
  5. Can you float your interest rate for now, and lock in later?
Loan processing time
  1. How long does the lender expect to take to process your loan application?
  2. What has been the lender's average time for processing loans recently?
  3. Has the lender's loan volume increased?  Heavy volume might increase the lender's average processing time.
Complaints about rate locks

Knowing what to look for puts you in a better position to decide whether, when, and how long to lock in interest rates.  Also, by helping to keep the loan process moving, you can lessen the chance that your lock-in will run out before settlement.

But what if your rate lock does expire? If you believe that the expiration was due to delays caused by the lender or someone else involved in the loan process, you should try to reach an agreement with the lender. If that fails, consider writing to the appropriate state or federal regulatory agency.

Some lender actions, such as offering rate lock terms which are impossible to fulfill, failing to process your loan diligently, or causing your rate lock to expire are improper not to mention quite possibly illegal.  Be aware that complaints may not be resolved quick enough for the current home purchase.

Depending upon their authority under applicable state or federal law, regulatory agencies may either attempt to help you resolve your complaint directly or record your complaint and recommend other action.

State Agencies

State consumer protection offices, banking authorities, and offices of the attorney general can be contacted regarding complaints against many lenders doing business in the state. (Some states have enacted legislation to spe­cifically address complaints about mortgage lock-ins.)

Federal Agencies

In addition, some lenders are directly super­vised by federal regulatory agencies, as shown in the list that follows:

Federal Credit Unions
National Credit Union Administration
Office of Public and Congressional Affairs
1775 Duke Street
Alexandria, VA 22314
(800) 755-1030

Federally Insured Non-Member State-Chartered Banks and Savings Banks
Federal Deposit Insurance Corporation
Consumer Response Center
2345 Grand Boulevard, Suite 100
Kansas City, MO 64108
(877) 275-3342

Federally Insured Savings and Loan Institutions and Federally Chartered Savings Banks
Office of Thrift Supervision
Consumer Programs
1700 G Street, NW, 6th Floor
Washington, DC 20552
(800) 842-6929

Mortgage Companies
Federal Trade Commission
Consumer Response Center - 240
600 Pennsylvania Avenue, NW
Washington, DC 20580
(877) FTC-HELP (877-382-4357)

National Banks
Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, TX 77010
(800) 613-6743

State Member Banks of the Federal Reserve System
Federal Reserve Consumer Help
PO Box 1200
Minneapolis, MN 55480
888-851-1920 (Phone)
877-766-8533 (TTY)
877-888-2520 (Fax)


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