Extended Rate Locks Explained
Extended rate locks are different than “normal” locks. Most notably, these locks require upfront money, have an artificial rate cap, and offer the option to “float down” the rate before closing.
General Extended Rate Lock Policies
• Locks must have a valid property address and borrower Social Security number (SSN).
• Locks are not transferrable from one property address to another.
• Locks, extensions, and relocks are not allowed on loans in Underwriter (UW)-Declined, Withdrawn, or UW Cancelled status.
• Lock expiration dates that fall on a weekend or holiday roll to the following business day.
• Lock extension terms are added to the current expiration date.
• Relock terms begin on the day of the request.
Upfront Costs
Extended rate locks require upfront money. A home buyer may apply these funds towardsclosing costsatclosing(depending on the loan’s structure). This option will be discuss below in greater detail.
Initial Rate Cap
Extended rate locks have an artificially higher locked rate. The interest rate increases the longer the lock period. Moreover, the amount of upfront cost – and whether it’s refundable – also impact the start rate.
Think of extended rate locks as an insurance policy. Doing an extended rate lock sets a “cap” on the interest rate which protects the homebuyer if interest rates increase before closing. All the while, the free rate float down allows the homebuyer to lower the interest rate in the event that rates are lower than the locked “cap” rate.
Float Down Criteria
A homebuyer can execute the float down feature if three criteria are met:
The homebuilder (or seller) provides a firm, definitive closing date
The interest rate float down can be explored once a definitive closing date has been provided by the builder. Builders typically provide a 30-day notice before closing.
The float down occurs within 60 days (about 2 months) of closing
The second criterion needed to float down the rate in an extended rate lock is that closing must be within 60 days (about 2 months).
Full credit approval has been issued by underwriting
The third criteria to float down the interest rate is to have the loan fully credit approved by underwriting. This means underwriting must have approved all credit documents – i.e., paystubs, tax returns, bank statements, etc.
Lastly, once these three conditions are met, we can float down the rate to current market rates (assuming that current market rates are lower than the initial “cap” rate). If current market rates are higher than the initial “cap” rate, then we obviously won’t have the option to float down the rate.
Refund Details
Below are examples of when the upfront money will not be refunded.
Property address cannot change
Most importantly: the property address cannot change on a locked loan. If a property address changes, the loan must then be withdrawn, and a new application must be originated with the new property address. The pricing on the new address will be subject to current market rates at the time of the new application.
Don’t let the extended rate lock expire
Every mortgage rate lock has an expiration date based on the duration of the lock. The interest rate is lost once it expires. All costs and credits associated with the rate are also null and void.
Do not let the rate lock expire. All deposits are forfeited, and will not be refunded, if the rate lock expires.
Extended rate locks cost money
Locks can be extended beyond their expiration dates; however, there is a cost associated with the extension. The cost of the extension depends on the duration of the extension.
Typical extensions are about .125% to .25% for 7 to 15 days, respectively. The longer the lock extension, the higher the costs.
Currently, the maximum number of days allowed for an extension is 30 days. Both the interest rate and collected money will be forfeited after the 30-day extension.
Can You Extend a Rate Lock?
Extended rate locks cost money. Locks can be extended beyond their expiration dates; however, there is a cost associated with the extension. However, the actual cost of the extension depends on the duration of the extension. Typical extensions are about .125% to .25% for 7 to 15 days (about 2 weeks), respectively. The longer the lock extension, the higher the costs.
Lock Extensions
The following applies, regardless of market movement.
Number of Days Cost
One = .020 bps per day
• All lock extensions must be requested on or before the day of expiration.
• Expired locks cannot be extended. Follow the Relock Policy for expired locks.
• We permit a maximum of 60 days for lock extensions.
• Lock extension expiration dates that fall on a weekend or holiday will automatically roll over to the next business day.
Relocks
Relocks are allowed on expired locks only. The new pricing is based on the worse case between the original lock date and the current market. Final pricing includes all prior extension and/or relock fees. The original lock term will be used to determine pricing.
Example: If original loan was locked for 30 days, the relock will be based on 30-day pricing.
The following relock fees apply:
Days Relock Fee
10 days = 0.000%
21 days = 0.125%
30 days = 0.250%
45 days = 0.375%
The relock term cannot exceed the original lock term.
Example: If original loan was locked for 21 days, the loan will not be eligible for a 30-day or 45-day relock.
Rate Renegotiations/Float Downs
Improving market conditions, a rate renegotiation/float down is available under the following guidelines:
• Current market with 0.50 float down fee.
• Original lock expiration date will apply.
• Only one float down is allowed per loan.
• All previously applied pricing adjustments will remain.
10-Day Lock Option
We offer a 10-day lock option. Pricing will be 0.125 improvement to the 21-day price.
Eligibility:
• Only available for Conventional and Government products
• Not allowed on Jumbos, AIOs, or Bond/HFA loans
• Purchases can lock in Approved status
• Refinance transactions must be in Clear to Close (CTC) status
• If additional days are needed on the lock, lock extensions are still available
Be sure to close
If an application is withdrawn (i.e. the loan does not close), the extended rate lock fee willnotbe refunded.Conversely, the extended-rate-lock fee will be returned if the loan is denied by underwriting.
Summary
In conclusion, we understand that this may be a ton of information to digest. Feel free to contact us with questions; we’re always happy to help.
