Once your real estate offer is accepted, the next step is to inform your lender and secure a rate lock for your mortgage, which typically lasts between 30 to 60 days. Keep in mind that if things get delayed, you might have to extend this rate lock. Extending your mortgage interest rate, often costing a fee, means you should aim to finalize your property purchase promptly.
A rate lock guarantees that the lender will honor a specific interest rate for a predetermined period, protecting you from any increases during this time. However, if rates fall, you can request a new rate lock. If you don’t close on your home within the initial rate lock period, you might face a fee for extending it.
The fee for extending your rate is calculated as a percentage of your mortgage amount, generally ranging from 0.15% to 0.4%. The larger your mortgage, the lower the percentage fee you’ll typically pay. If this isn’t the case, it might be wise to shop for another lender.
For example, if you’re taking a small mortgage of $100,000 with a 30-day rate lock and encounter delays, your lender might charge a 0.35% extension fee, equating to $350. This cost could be justified, especially if the delay saves you from higher future interest costs, such as an additional $6,000 over time due to rising rates.
In another scenario, imagine you’re close to closing on a $1,000,000 loan when an unexpected family emergency requires your attention, delaying the process. If the extension fee is 0.17%, you’ll pay $1,700, but supporting your family in times of need is invaluable, reflecting the complex decisions involved in managing mortgage timelines.
To extend your rate, simply request one from your lender and explain any delays. Understanding lenders will likely accommodate to maintain your business, particularly if you’re likely to refer others to them.
Furthermore, various delays can necessitate a rate lock extension. Sellers might need more time, or as a buyer, you might face delays in securing your funds or completing necessary documentation. Sometimes, you’re just not ready to move, needing more time to sort out logistics or reconsider your big purchase decision. Delays might also arise from waiting for financial confirmations like promotions or from the slow processing of your mortgage due to larger systemic issues like a pandemic.
In closing, the real estate process is intricate, involving many parties and potential delays. Always aim to be proactive with your documentation to avoid extension fees, and remember, a responsive and accommodating lender is key to a smooth transaction. If a lender is quick to charge fees despite your best efforts, consider looking elsewhere to better align with your needs and circumstances.
