Extensions: When Your Time is Up With Your Lock

When you lock in a mortgage interest rate, it is for a specific period of time, such as 30, 45 or 60 days. Your mortgage professional should make sure it is for an adequate amount of time to close the transaction. If it’s a purchase, the lock may be for a few days after the transaction and if it’s for a refinance, 30-45 days should be plenty of time in a “normal” market for the lock period. Purchases, depending on the type of transaction can be closed from two weeks or more (or more is preferred, less can happen too).

If you run out of time on your lock, it needs to be extended or the rate is no longer available (if rates have increased). Extensions, like locks, vary in price based on how long thebuytime extension period is. Sometimes, if rates have improved or are the same, the lender may offer a “no cost” extension-that always makes me happy. :) When rates have worsened, you can count on a cost for your extension. Every lender has different costs. As a Correspondent Lender, we work with many lenders and they all have different costs and policies for extensions. Some will allow us to extend for a specific amount of days; for example if we only need 3, we can have a 3 day lock at a prorated cost. Others bracket the days and so if we need 3 days, and they bracket extensions 1-10 days, we’ve paid for 10 days.

Here’s a few examples of extensions offered by a few of the lenders I work with. The cost referenced are in fee as a percentage to the loan amount. If your mortgage is $400,000 and we are working with Lender A below, your extension rate would be 400,000 x 0.015% = $60.00 per day.

Lender A offers a daily extension at a rate of 0.015% per day. They allow me to re-extend if I did not extend long enough the first time (most lenders do not allow this…you go directly to worse case pricing).  

With Lender A, the difference between a 30 day and 45 day (original) lock period today is 0.165%; extending for 15 additional days (if you locked 30 days and needed up to 45) is an additional 0.225%.

Lender B offers extensions in brackets:

1-5 days = 0.063%

6-10 days = 0.125%

11-15 days = 0.188%

16-20 days = 0.25% up to 26-30 days = 0.375%

With Lender B, the difference between a 30 day and 45 day lock today is around 0.298%. Extending for 15 days with a 30 day lock is 0.188% based on locking today.

Lender C offers various options:

If your extension is within 10 days of your lock expiring and short term pricing has improved, they offer a 15 day lock at no cost.

If current pricing is worse than the locked rate, then you have the option of fee based pricing based on the expiration date:

5 days = 0.125%

10 days = 0.25%

15 days = 0.375%

30 days = 0.500% (purchase)

30 days = 0.500% (refi)

Lender C also offers market based pricing based on extending the lock from that date (instead of the expiration date of the lock) factoring in the current market.

When you extend on Lender C’s site, a LO has a couple of options they can select from based on how much time is needed and what is the lowest cost.

The difference between a 30 day and 45 day lock (currently) is 0.096% vs. having to extend after 30 days for 0.375% unless the market (rates) have improved.

Here are some possible reasons why a lock may require an extension:

~ Loan Originator did a short lock (less than 30 days or less than what was indicated for closing on the purchase and sale agreement).
~ Mortgage company did not perform in a timely manner.
~ Borrower did not provide documentation in a timely manner or caused delay in transaction.
~ Seller caused a delay in the transaction.

My personal opinion is that who ever caused the extension to be paid should be the party responsible for paying it. Often times, the delay may be unintentional but it happens. It’s crucial for borrowers to understand that once a loan is locked, a clock is counting down the days left for closing the new loan. On the occassion that I need to extend a loan, I review the transaction to determine why we ran out of time.

When I lock in a loan, I would rather have a few extra days than go short on the lock period. The cost of the next longer lock period is often less than what an extension may cost. The key is to make sure the loan is locked for the correct time frame to start with. Your Mortgage Professional should provide you with a Lock Confirmation that will disclose when your lock will expire. It’s important to confirm that your lender has allowed enough time for the transaction with the lock and to address the “what ifs” in the event the transaction does not close in time. With an extension, you are simply buying time.

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages.

She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445
NMLS ID 40445. Equal Housing Opportunity.

You can follow Rhonda on @mortgageporter, Facebook and/or Google+

Comments

  1. Off topic a little:

    I was browsing on Bankrate.com and noticed that Aimloan and Providers Financial Inc. were consistantly below other lenders for a conforming 5/1 ARM refi with zero points. What’s the catch? What does the “fees in APR” mean?

  2. I’m sure Rhonda will have a better answer than me, since I am not in the mortgage business. But the 5/1 ARM reminded me of a similar situtation many years ago with Countrywide. They consistently had a 5/25 rate that couldn’t be beat. Many of my clients used 7/23 loans and not arm products back in the 90s when buying their first condo properties, since they planned to trade up in housing within 7 years.

    I asked this same question then, and they said they expected rates to go up, so they were pushing the use of the short term locked product. They’d rather make less on the 5/1 product, than do 30 year loans at rates that were expected to increase.

    Kind of like the way everyone wanted long term bonds when interest rates were in the double digits, as long as they could get, and no one wanted the short term notes.

    Different companies push different products by making them more attractive. Usually those are the poducts that are better for the lending institution than the borrower, so they make them more attractive by dipping the rate below market rate.

  3. Q-Diddy, I have a hard time trusting anything that’s on a site like Bankrate settles on a lawsuit accusing them of allowing lenders to use “bait and switch” for rates. As far as what their fees are in APR, you would need to obtain a GFE from the lender to see what costs are being associated with the rate they are quoting…I’ll eat a shoe, okay just my words, if the rate on bankrate is available at the cost they quote.

    In a market where rates are improving, these types of lenders have better odds when posting rates…in a market where rates are deteriorating, and the rate posted is lower than what’s available…good luck.

  4. ARDELL, that’s a good argument on why consumers may want to consider a mortgage broker or correspondent lender to work with who has the capability to work with all of the banks and their programs. Otherwise, if a lender goes directly to bank, they may be missing out on what another bank has to offer.

    Right now I have some lenders offering more competive rates beyond the “norm” of how lenders are pricing other rates. These lenders, IMO, are trying to buy the market and position themselves to be boughtout by another bank.

  5. Rhonda-

    Yeah, I suspected as much, but since I’ve never used bankrate.com before I thought I’d ask.

  6. Q-Diddy,
    Whenever I see CNBC or any media using bankrate to show current mortgage rates I want to pull my hair out! :)

    The rates quoted from them, or any lender, could be a shorter term. For example, if one lender quotes a rate based on a 15 day lock period and another quotes a 30 day lock, the 15 day is going to seem much better…but guess what? Odds are very high that if you opt for the lower rate quote (based on the 15 day lock), you’ll be paying $$ for an extension.

  7. Double that to what Rhonda says about bankrate. Advertisers compete for who can break the law most egregiously, bait you in, then try to regain the lost (or non-existant revenue).

    Useful site for some info, but not for finding a lender, unless you live in a remote corner of the US that does not have access to good mortgage brokers/lenders willing to search for the best deal for you. That is certainly not the case in King or Snohomish County

    Re the 5yr ARM: there has been an increasing spread between the 30 yr fixed and the shorter term loans, primarily caused by the rapidly decreasing cost of short term money (falling Prime Rate).

    The paradox, as Rhonda pointed out in an earlier post, is that the decreases in costs for short term money usually results in INCREASING costs for long term money (30 yr fixed), because of it’s inflationary effects.

    While the Prime Rate went down by 1.25%, 30 yr fixed rates went UP by about 1%.

    5yr ARMS have split the difference, and have gone up by roughly .625% during that same period.

  8. Re locks:

    Turn times at ALL lenders have been awful recently.

    Not the LO’s fault, but not the borrower’s either.

    I’ve been eating the costs of extensions this month, and boy am I full of them! Thankfully, some lenders/banks recognize that this is their problem, and have granted them for free.

  9. I’ll eat extenstions too when it’s not the from the borrower or seller delaying the transaction…whenever there’s an extension, I review the file from start to finish to see where the delays were and to determine what caused the delay.

    If I’ve done too short of a lock period and the borrower has provided everything in a timely manner, I’m eating the extension fee.

    The key is to lock it correctly the first time.

  10. Roger said,

    “…not the LO’s fault, nor the borrower’s either.”

    And sure as heck not escrow. Lately, our working hours have been from 6pm until very late—due to loan docs coming in at 7, 8, 9 pm and even on Sunday. We even rec’d some docs from a midwest lender at 1am Central Time! Someone is busting their arse to make it happen for an LO and client. Someone who we’ll never meet. Props to all backoffice staff (processors, underwriters and funding dept’s, and others) pulling serious double duty processing all these refi loans.

  11. Tim:

    We LO’s know what heros closing agents and escrow can be. Too bad it all had to happen in such a rush!

    Let’s hope we don’t hafta go back to twiddling our thumbs next month!

  12. I’m real thankful for the escrow/title hat I used to wear many moons ago. :) It’s an eye opener.

  13. I’m dealing with having to extend loans right now that I thought I had locked long enough (45-60 days) due to subordinating second mortgages (For example, Chase is taking 20 business days to subordinate their second mortgages–that’s a month–and they don’t review it until you have the appraisal in hand).

    Just make sure that if you’re shopping lenders (esp. for a refi which does not have a contract closing date) that rate you’re considering is allowing a long enough time to close AND ask your LO “what if this doesn’t close by such & such date…”

  14. BTW extensions are more expensive these days…

  15. Jovan (CA) says:

    Hello,
    I have been in escrow for almost 90 days. We have run into a problem where we the second bank on our house needs to re-send a title doc to escrow. They have been delaying us in closing. We are continuely having to extend our rate with our lender. My realtor has vowed to pay these extention cost for us. My question is. Is the cost of the extention a cost in addition to the cost of the rate? We have had to extend about 3 times so far, and counting. We are first time buyers and trying completely understand how the % cost of the extension works. Our loan agent isn’t very good at understanding my questions on this or answering them.

    • Hi Jovan,
      Extensions are typically an additional cost depending on:
      1) the lender your mortgage rate is locked in with (different lenders may have different policies). I wrote about this is the post above but I can see that because of our new format, it’s looking kind of “wonky” so I’ll edit that for you :)
      2) what the market is currently doing. Sometimes if rates have improved, the lender may be able to negotiate a free or low cost extension. If rates are higher than your locked rate, there will be a cost to the extensions.

      Your loan originator should be redisclosing a new good faith estimate with you if there are additional cost associated with your mortgage.

      Good luck!

      • Jovan (CA) says:

        Thank you for the quick response, Rhonda. We spoke to our loan agent yesterday. She is with BofA. We are extending our rate of 4.875 at a cost of 2% for 30 more days. Our realtor has said she will pick up the cost of the extension. I hope she keeps her word. We have had to extend over and over. Doesn’t that mean that each extension will b have a seperate cost for each time? So, for the extensions from April, May and June, we will have a tallied cost. Right? Sounds like alot of money. We already cut a check when we were suppose to be closing at the end of May. All of this will be added to that is what you are saying?

        • Jovan, have your BOA LO provide you with an updated Good Faith Estimate detailing all the cost associated with your transaction.

          • Jovan (CA) says:

            that is a good idea. I will do that. My LO just retired and iw as re-assigned to a new person. I will call him today. Thank you again.

  16. Jovan, good luck! Are you going to stick with BOA? Make sure who ever you’re “re-assigned” to that they are experienced. I would insist on it…especially considering what you’ve gone through.

  17. We got a buyer for our home and seen the pre-approval letter from their bank. We locked in our rate for our new home. Without our knowledge the buyers agent for our house advised him to apply for a different loan than what was on the offer to purchase. That bank then delayed an appraisal getting completed for our house thus closing was pushed back and we had to extend our rate lock. We think the buyers agent should pay for our rate lock extension because that would not have happened if they applied with the bank on the OTP. Thoughts? Thanks.

    • This could be a good question for a real estate agent…if the purchase and sales agreement specified a specific loan program, conforming with x% down payment and the buyer switched this without informing you…you may have a point.

      With that being said, although they may have cost you money with having to extend your loan, even if they “should” pay for the extension because it would be the “nice” thing to do; I wouldn’t count on it happening.

      Have you discussed this with your real estate agent? What does he/she say?

  18. Rhonda (and Chad),

    I don’t think the switch of lender is the primary issue in that example, as the type of loan is about the finance contingency of the buyer, not the close date for the seller. The key point would have been when the buyer asked for a close date extension (regardless of why). Before signing off on the close date extension, the seller could negotiate the additional cost to them as part of agreeing to a later close date. Going back after the fact to do that is difficult, and if the transaction has already closed, nearly impossible.

    Depending on where you are, a seller having a buyer at all in this buyer’s market makes it hard to make demands on the buyer. Probably everyone at the time was happy that the buyer could close at all…even if it was a little late.

  19. Ardell, it may not be the issue, but it does seem to be Chad’s question. I do agree since it’s a buyers market, it’s tougher for Chad to argue his point.

    If I were the seller and the buyer switched programs and/or lender (if a preapproval letter was used with the offer) I would be royally peaved if the transaction was delayed.

    Ardell, in a seller’s market, could a seller get out of the contract if the buyer did not stick to the financing addendum?

  20. There is additional dialogue about this post/recent comments on my FB profile http://www.facebook.com/profile.php?id=726876045&v=feed&story_fbid=153969738601 (hope this link works)…

  21. It’s been a while since I wrote this post… and I thought about it when I received a notice from a second lender that they’re JACKING their extension fees up an additional 0.4% because of the payroll tax cut. PLEASE MAKE SURE YOUR LOAN IS LOCKED LONG ENOUGH.

Trackbacks

  1. [...] lock extension is what is required when a loan does not close in the time frame as arranged with the original [...]

  2. [...] I'm taking a "blogging break".  This article is a "re-post" from Rain City Guide.  To read the original comments, please click here. [...]

  3. [...] If you are refinancing and have a second mortgage or HELOC that will not be included in the refinance, make sure your loan originator is aware and that they know how long subordinations are taking so they can lock your rate in appropriately.   A 30 day lock with a 20 day subordination is not going to cut it.  You'll be looking at having to deal with a lock extension. [...]

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