As soon as your real estate offer gets accepted, you notify your lender with the relevant ratification documents and lock in a rate. The rate lock is usually for 30 – 60 days. However, sometimes things take longer than expected and you need to get a mortgage interest rate extension. A mortgage interest rate extension is also sometimes called a rate lock extension.
A rate lock is a guarantee assuring that a mortgage lender will honor a specified interest rate at a specific cost for a set period. If mortgage rates go up during the rate lock, the lender will still keep your mortgage rate the same. If mortgage rates go down during the rate lock, you can ask for a new rate lock.
Given the rate lock is usually only for 30 – 60 days, there is pressure on borrowers to make sure they close on homes before the rate lock period expires. If it’s looking like the property will not close within the initial rate lock period, you may need to pay a mortgage rate extension fee.
The mortgage rate extension fee is based on a percentage multiplied by the size of the mortgage amount. The percentage fee ranges usually between 0.15 percent to 0.4 percent. The percentage fee declines the higher the mortgage amount. If it doesn’t, find another lender.
Let’s say you take out a relatively small mortgage of $100,000 with a 30-day rate lock. You run into delays and need a mortgage rate extension. Your lender charges a 0.35 percent fee. Therefore, the mortgage rate extension fee equals $100,000 X 0.35% = $350.
If you have a choice, you must now weigh the cost of the mortgage rate extension fee to the benefit of getting a rate extension. Perhaps during the rate lock period mortgage rates increased, causing you to pay $50 more a month for at least 120 more months.
In this scenario, paying $350 for a rate extension fee is way better than paying $6,000 more in interest.
Let’s say you take out a jumbo loan for $1,000,000 with a 45-day rate lock. You’re ready to close on the 40th day but your dear Aunty Sally gets sick with COVID-19. You need to go visit her in the hospital for a week. You request a mortgage rate lock extension.
Due to the larger mortgage amount, your bank charges a 0.17 percent fee. Therefore, your mortgage rate extension fee equals $1,000,000 X 0.17% = $1,700.
Although it’s painful to pay the $1,700 rate extension fee, it would be more painful to not be there for your Aunt Sally. She always looked after you growing up because both your parents were never home. She is like a second mother.
Related: All The Fees In A “No-Cost” Refinance
To get a mortgage interest rate extension, you simply ask your lender for one before the deadline. Explain the circumstances for why you need an extension. Any lender who still wants your business will likely grant you one.
The lender shouldn’t mind granting a rate extension. If you have to pay a mortgage rate extension fee, then that’s even more profit for your lender. You might even refer your lender to several friends, thereby potentially increasing your lender’s business even further.
Once your rate lock extension is granted, you usually have another 30 – 60 days until you will either have to ask or pay for another rate lock extension or cancel your transaction.
Before entering a rate lock with a lender, you should ask what the mortgage rate extension fee will be if one is necessary. Also ask for the length of the mortgage rate lock extension so you can plan accordingly.
Below is a final refinancing closing statement. I’ve highlighted the mortgage interest rate extension fee example, which is also called a rate lock extension. The mortgage interest rate extension fee in this example is $875.89. It is charged to the borrower (debit), not the lender.
Sometimes you won’t even have to pay for a mortgage rate extension fee. You won’t have to pay if it is determined that the delay was caused by the lender.
For example, perhaps your lender’s underwriting department requires more documentation than normal, like during a pandemic. Your mortgage officer said you’d close within the 30-day rate lock. However, the underwriting department, which is not controlled by the mortgage officer, has other plans.
On the 29th day, the underwriting department asks you to submit documentation for a $10,000 payment that appears in your last month’s checking account statement. The only problem is the vendor went bankrupt and is hard to get a hold of. Because it will take at least a week for you to get a written proof of payment, you request for a mortgage rate extension.
Because of this last-minute request by the underwriting department, you can ask the mortgage officer to waive the mortgage rate extension fee. After all, you had submitted all the required documentation and were ready to close on time.
As a result, the lender may agree to “pay” for the mortgage rate extension fee. I put pay in quotes because the lender is not paying anything at all. It’s just not charging you the fee due to its own delay.
We’ve already discussed some reasons why you would need or want a rate extension. Here are even more reasons:
Before the pandemic, the average length of time it would take to close on a property was about 50 days. Post pandemic, the time to close on a property is likely closer to 60 days.
There are so many moving parts and people to depend on to close a real estate transaction with a mortgage. Therefore, asking for a rate extension is quite common.
Both the seller and the buyer should be understanding that delays can and will happen. If both parties want to get the transaction done, then more time is sometimes needed.
As a homebuyer, one of your goals is to not pay for a mortgage interest rate extension fee. You can improve your chances of having the lender pay the fee by always being responsive and getting all the documents you can in a timely manner.
Remember, the lender wants your business. If it decides to charge you a mortgage rate extension fee after you’ve been super responsive for weeks, you might decide to take your business elsewhere.
Readers, have you ever had to do a rate extension? If so, did you have to pay a mortgage interest rate extension fee? What was the reason why you needed one?
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