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 example.
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.