I locked in my refinance mortgage rate almost two months ago. I have provided the lender with everything asked for, yet we won't close in time. My rate lock will expire and mortgage rates have gone up. Do I really have to accept a higher rate?
What happens if your mortgage rate lock expires before your refinance closes?
Most lenders give purchase transactions priority over refinancing because real estate contracts have closing dates and if deadlines aren't met, buyers could find themselves out of contract and lose the home. In 2010, it took an average 52 days to close a mortgage, and it's a safe bet that purchase transactions closed faster while refis took longer.
Can you re-lock or extend your rate lock?
Yes, subject to worst-case pricing rules. Worst-case pricing refers to the way lenders contract with you to lock a loan. It means that whatever the rate is when you lock is the best deal you're going to get. So if your lock expires and rates go down, you don't benefit from the improvement. However, if your lock expires and rates go up, you'll pay the higher rate. Your other option, if rates are increasing, is to request a rate lock extension. You may be able to get a couple of days for free, but after that it costs money--typically 1/4 point for 14 days.
Renegotiating your mortgage rate
Because lenders expect refinancing to take longer than a purchase loan, they often offer 60-day locks for the price of a shorter-term lock to refinancing applicants. That said, rate locks can still expire before refinance mortgages close. If your refinance loan closes late because of bottlenecks at the lender's end, you might be able to negotiate a lock extension at little or no cost.
Know your lender's rate lock policy
Your lender should be able to provide its rate lock policy in writing. Here's a real-life example of one lender's policy:
If the delay is caused by *** Lending, we will extend the lock at no cost. However, if the delay is caused by you or a third party service provider, your loan must be re-locked subject to worse-case pricing and prevailing interest rate market conditions. Delays caused by you include, but are not limited to, (a) requesting subordination of an existing second mortgage or home equity line of credit, (b) not supplying loan documentation within one day of our request, (c) providing inaccurate, inadequate, obsolete or incomplete documentation or loan information, (d) changes in loan terms, or loan program, (e) delaying termite inspections, survey inspections, appraisal inspections or document signing appointments.
I did make a few phone calls and found that most lenders are willing to extend your lock for free when they are responsible for the delay.