locked in rate? Can I get my rate lowered after lock-in

[sgonz1006]

I've locked in a rate with my mortgage broker. Does my broker have to give me the lower rate since the rates have gone lower in the past week? Or am I stuck with the rate that I locked in at? Any advice greatly appreciated.

Thank You

Rodney

 

[David J. Miller]

Some lenders will allow you to pay a fee to re-lock your interest rate, other's won't. Generally speaking, once you lock the rate the mutual agreement you have entered into, assuming you signed a lock agreement is that if rates get better you will honor the rate you locked into. If rates get's worse, the lender will honor the rate you locked into.

The issue from the mortgage companies position is that when an interest rate is locked, it costs money if that rate is not delivered. The mortgage company actually hedges your rate in the marketplace, much like a builder will hedge on lumber prices to avoid rising costs during construction. Obviously the problem is that once you lock the rate it could go or down and no one knows for sure which. To do so would require a crystal ball.

In short, you are stuck with the rate you locked into and at least in my state, it would be illegal for another mortgage lender to even quote you interest rates when your are currently locked in with another company.

Look at it this way, if you locked your interest rate to let's say 6.5% today and tomorrow the interest rate goes up to 7%. Would'nt you be upset if the lender decided to give you the higher interest rate? Well they won't do that since you "locked" the rate.

 

[roland]

Absolutely! You spin the dice when you lock in. I can't believe people would want to get the better rate no matter what!

 

[HomeGuru]

Well there are thousands of dollars at stake.
Take a loan of $100K. Even at a 1/2 percent lower interest rate than the intial locked rate, it is a cost savings of thousands over the life of a 30 year loan.

 

[roland]

then they have to refinance. It's no different from locking into a cd; if the rates go up, you must cash out the cd and pay the penalties to get the higher interest on your cd.

 

[David J. Miller]

I know Homeguru understands that. I think he was simply playing devil's advocate if you'll pardon the expression.

For the benefit of the readers, locking your interest rate on a mortgage is like choosing to buy a certain stock on a certain day. If the price of that stock goes down and you loose your principle, you cannot take that purchase back as though it was never made.

There is a tremendous benefit for those with little risk tolerance to locking your interest rate that you cannot forget about. If you lock-in the rate which results in a particular payment amount that is manageable according to your financial objectives, you have been successful in that financial decision. To do otherwise would be to leave yourself open to being stuck with a payment that would not be as agreeable to your financial obtjectives. This is a service offered by the mortgage company. If they wanted to, they could simply avoid locking rates at all and only offer the rate available on the day of closing. More people would loose in this scenario than would win.

For those with more risk tolerance, "floating" the interest rate is an option made available by the mortgage companies. You have to decide before locking the rate which category you fall in.

It is also important to note that since interest rates are so unpredictable, it is not customary in the mortgage business to offer advice on what direction interest rates will go in the future.



[Edited by David J. Miller on 01-18-2001 at 12:42 AM]