Rate Drops After Approval



Mortgage-Rate-LookbacksWhen you’re approved for a mortgage your lender agrees to hold your interest rate for a set period of time.

Rate holds are usually either:  120-days, 90-days, 60-days, 45-days, or 30-days.

When you have a long rate hold, much can change before you close.  Odds are, rates on your closing date will be different from the rate you received when applying.

If rates go up, you’re laughing because your rate hold protects you.

If rates drop, you’ll want to make sure your bank or broker is watching out for you and secures you the lowest rate possible.

Different lenders have different policies on rate adjustments.   Here are a few examples:

  • Rate Fixed Before Closing: Some lenders will adjust your rate lower (if applicable) at a set number of days before closing–like 5 or 7 days.  This means you have to wait until that date to make any adjustments.  If rates drop and then go back up before this date, you don’t benefit from those previously lower rates.
  • Broker-Instructed Rate Locks:  Some lenders give brokers a chance to re-lock their client’s rates at any time between approval and closing.  The broker usually gets one shot in this case, so timing is everything.
  • Rate Lookbacks:  Hindsight is 20/20, and this is one of the few cases where you benefit financially from it.  Rate lookbacks are the best of all rate drop policies because they require no timing. The lender simply offers you the lowest rate they’ve had between your approval and closing dates.  ING and MCAP are two examples of lenders offering this policy.

Other things being equal, choosing a lender that offers rate lookbacks will save you money over the long-run, especially if you have a 90 or 120-day rate hold.

Remember as well that some lenders require broker intervention to arrange for a rate drop.  Other lenders simply drop your rate automatically at their specified rate adjustment date.  Always ask your mortgage planner how the lender you’ve chosen works in this respect.

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Comments

  1. Comment avatar

    tee    

    Being a newbie to mortgages here’s a question: What happens if you’ve been approved by a lender who doesn’t have the “rate lookback” policy as you mention above?
    Can you simply reshop to another lender assuming of course you haven’t closed yet?

     
  2. Comment avatar

    Bob    

    Just tell the lender to cancel your deal and start a new application you will get the lower rate.

     
  3. Comment avatar

    Dave    

    Don’t wait till the last minute though. As a rule of thumb, allow 5 business days for approval and paperwork and 10 business days for legal instructions and closing. Generally speaking if you are within three weeks of closing you are best to stay put.

     
  4. Comment avatar

    Donald Wilson    

    Be careful about cancelling and restarting a new application, as many lenders are now following the CAAMP standard of requiring full satisfaction of all conditions 10 full days prior to closing, and will not instructed until that date has been met.

     
  5. Comment avatar

    tee    

    “the CAAMP standard of requiring full satisfaction of all conditions 10 full days prior to closing” whats this?
    So two different opinnions, can I or can’t I cancel and restart a new application either at the existing lender I’ve been approved at or at a different one?

     
  6. Comment avatar

    Braiden Harvey    

    This has worked a number of times for me. Thanks for the great sales protection article.
    Braiden Harvey

     
  7. Comment avatar

    Dave    

    Things always seem to take longer than expected when arranging a mortgage. People are usually safe if they allow at least 30 days before closing to re-apply.

     
  8. Comment avatar

    Jay    

    Does it make a difference if you signed the commitment letter 3 months in advance and want to cancel the deal? With all the ‘Quick Close’ promotions, many buyers will be tempted to do this in the 30 days period before closing.

     

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