Ed Powers
May 2022

Rates Drop During Your Lock Period? Here’s What to Do

Ouch. Mortgage rates yet again hit a record low, this according to the recent mortgage rate report from Freddie Mac. That’s good news for homebuyers and those who are refinancing (again). This is a drop of nearly 0.50% from just last month. That’s quite the dramatic fall. For those in the mortgage rate market, it’s really a good time to snag these current rates.

Lower rates mean lower monthly payments which means more people can qualify for a home loan. But you can’t get these low rates just by calling up your mortgage company and telling them you want a lower rate. You’ll have to submit a loan application, document the file, get credit pulled and other actions on your part before you get to a position where your loan can be “locked.” Your loan officer can provide you with when it’s okay for you to lock with a Lock In Agreement. These agreements can vary somewhat from lender to lender but in general they spell out the lock procedures, when you’re eligible to lock and what happens when your lock expires before you close on your transaction.

Lenders take rate locks very seriously, just as consumers do. When someone locks in a mortgage, lenders, in essence, reserve that rate for you and assigns it to your loan amount. Your rate lock protects you from interest rate swings up until your closing. The lock agreement will also tell you what happens if your lock period expires before you close. A common lock period might be for 30 days with some as short as 10 or 15 days. The longer the lock period, the more expensive it will be. But the lock needs to be at least as long as it takes to close your transaction. 

What if rates fall during your lock period? Many might first think just to wait it out, let the lock expire and re-lock at the new, lower rate. But that’s not likely to happen. Most agreements state that in the instance of a locked rate, the borrower will be awarded the higher of the expired rate or the new rate. But there’s another way that just might work in your situation.

If rates fall just a little bit, the lender won’t be very inclined to make any sort of an adjustment, especially if you’re getting closer to your settlement date. If rates fall by say 0.125%, don’t expect very much love from your lender. But if rates fall by 0.25% or more, the lender might take your request a bit more seriously.

Lenders know there really is no agreement that says if you submit a loan application that means you can’t cancel your loan and go somewhere else. You certainly can. And that’s where you start to have an upper hand. You really want to get the new lower rate, but you also are thinking about resubmitting all your loan documents yet again to a new lender. New pay stubs, new tax returns, bank statements…everything. But you can if you want.

If your locked rate is 0.25% higher or more than what’s currently available, your lender will, or should, listen. Lenders would rather make some sort of rate adjustment at this stage instead of losing the deal altogether. You’ve certainly spent time submitting documents but so too has the lender shed out no small amount of overhead during the process, as well. 

When making a request for a rate drop, don’t expect to get the absolute lowest rate available but one very close to it. You may also need to pay a small fee to get the new, lower rate. The numbers will pretty much mesh all this out and tell you whether or not it’s a good idea. But if it is, there is a process. You just first have to ask.

Ed Powers
Direct: 970-690-3113
Ed Powers Real Estate
Cell: 970-646-3610
2044 Terry Lake Road
Fort Collins, CO 80524

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