March 19th, 2019 10:16 AM by Jackie A. Graves
Ask any loan officer what they hear from consumers more than any
other question is, “What are your rates today?” And that makes perfect sense.
Consumers are encouraged to shop around for the best deal and the interest rate
is the main component of that. But what consumers may not know is that rates
can change daily and even during the course of a single business day in times
of market volatility.
Such volatility has been rare over the past year or so but
that’s how rates can be higher in the afternoon compared to earlier in the day.
What consumers also may not know is that mortgage rate quotes mean little until
you’re able to lock that rate in.
Years ago, a borrower could call up multiple lenders over a
period of time and not only get a rate quoted over the phone but also lock that
rate in. Without even submitting a loan application or any documentation at
all. Those days are long gone and today lenders take interest rate locks just
as serious as consumers do. When a lender locks in a client’s rate, it
essentially reserves those funds from its credit line.
As part of the initial loan disclosure period when someone first
submits a completed loan application, consumers receive a Rate Lock Disclosure
document. It is this document that spells out when someone can lock and what
happens if a rate lock expires. Most lenders today won’t accept a lock until
and unless the lender has a completed loan application package. Lenders can
also decline an interest rate lock request if there is no sales contract or
subject property selected. However, when consumers do arrive at a point in the
process where they can lock in a rate, they do have options.
Rates and fees will be the lowest for shorter term locks. How
short can a lock be? Some lenders offer a lock period of 12 days but others ask
for a 15 day lock. Once the rate is locked, and it’s usually different than the
one initially disclosed, then another round of disclosures are required showing
the newly locked rate, APR and other features of the note. Perhaps the most
common lock period is 30 days, but borrowers may also be offered lock periods
of 60 or 90 days. Remember, the shorter the lock period the lower the rate.
Conversely, the longer the lock period, the higher the rate.
The lock period gives the lender sufficient time to prepare your
closing papers and deliver them to your settlement agent. The lock period must
be long enough to cover this processing time as well as reviewing your final,
signed closing papers. Sometimes a rate lock is set to expire soon and the
lender is not certain there will be enough time to fund the loan without a rate
expiration. The general rule is this: if a rate lock is broken, the consumer is
typically saddled with the higher of previously locked rate or market rates. It
doesn’t do the consumer any good to slow down the documentation process because
rates in general have fallen below the original locked rate.
Lenders can however offer lower rates even if a rate was locked,
but there are some lender requirements for a “float down.” First, to get a rate
lock extension, the extension must be issued before the rate expires and
second, for a float down, market rates must have fallen by a specific amount.
Don’t expect to nab the lower rate if rates have only fallen by 0.125% for
There are also times when a lock expires due to no fault of the
consumer and lenders can then provide a courtesy extension for enough time that
it takes to fund the loan. Such a concession is typically when the loan process
is taking longer than usual or the lender is taking more time than it should.
These concessions are completely up to the lender’s internal guidelines and not
necessarily universal from one lender to the next. To do your part, make sure
you act swiftly when providing documentation and answering any questions the
lender might have while your loan is being moved through the approval process.
If not and your rate lock expires, the lender can point to your delays in
providing requesting documentation.
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