By Bill Lyons | Published on October 6, 2023
TABLE OF CONTENTS

    A home is the largest investment many people make in their lifetimes. Unfortunately, the mortgage process can be complicated for first-time homebuyers who don’t know its intricacies and the different steps.

    One such intricacy is the mortgage rate lock extension and its associated fees. When you’re in the process of getting a mortgage, the interest rate is often a moving target. Rates fluctuate daily since economic factors influence them, and the volatility of mortgage rates can impact the overall cost of your home loan.

    To provide borrowers with a sense of security, lenders offer the option to “lock in” a specific interest rate for a given period. However, if you need more time than initially agreed upon, the mortgage rate lock extension fee might come into play. Keep reading more to learn about rate lock fees, what they are, and how they influence the mortgage process.

    KEY TAKEAWAYS

    • Lenders offer borrowers the ability to lock in a specific interest rate for a set period.
    • If you choose to extend your interest rate lock, you’ll be responsible for paying an additional cost known as the rate lock extension fee.
    • Rate lock extension costs can be a flat amount or percentage of the loan, with longer extensions costing more.
    • Being proactive, understanding lender policies, and anticipating potential delays can help you avoid rate lock extension fees.

    What Is a Mortgage Rate Lock?

    A mortgage rate lock is when a lender guarantees a borrower a specific interest rate on a mortgage for a set period after they apply for a mortgage pre-approval or complete the final mortgage application. This period spans from the time the rate is locked until an established expiration date, which should align with the expected closing date of the home purchase or mortgage refinance.

    The goal of a mortgage rate lock is to shield borrowers from the unpredictability of interest rate fluctuations. Mortgage rates are influenced by various factors, from geopolitical events to market sentiment, so borrowers may be exposed to inevitable volatilities that can deter them from purchasing a home.

    Essentially, borrowers are protected against rate increases for a set period of time, allowing them to find and purchase a home with more transparency about interest rates that influence the APR on a loan and the loan’s total cost.

    The Purpose of Mortgage Rate Lock Extensions

    Since mortgage rate locks only last a limited time, borrowers might wonder what happens once that offer expires. Rate locks typically last anywhere from 30 to 60 days, but this varies by lender. After your rate lock ends, you may be able to get a rate lock extension from your lender.

    Mortgage rate lock extensions are granted by the lender, allowing borrowers more time to apply for a mortgage once they’ve found their dream homes. With an extension, the locked-in rate remains in effect for longer to ensure that borrowers can still benefit from the same rate they initially secured.

    Rate lock extensions can help borrowers take advantage of lower interest rates. For instance, if the rate goes up after the expiration of the locked-in rate, it can cost borrowers thousands of dollars on their loans. However, there are a few caveats.

    Most lenders charge a rate lock extension fee, with the total cost depending on the length of the extension and the lender’s policy. In addition, some lenders restrict how many times you can take a rate lock or for how long.

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    Should You Extend Your Mortgage Rate Lock?

    Whether you should extend your mortgage rate lock depends on various factors. Ultimately, rate lock extension fees may deter you altogether. The cost to extend a rate lock varies, and it can be a flat fee or a percentage of the loan amount. In most cases, the longer the extension, the higher the lock-in rate extension fee.

    Borrowers should weigh the pros and cons to determine if it’s worth locking in a particular rate while paying a fee. If current market rates are much higher than your locked-in rate, paying the extended mortgage rate lock fee may be well worth it because it can help you save thousands of dollars over the life of your loan.

    However, the costs of an extended rate lock can quickly add up when facing long delays. Ultimately, you should compare your locked-in rate with current rates to determine your best option.

    How Much Are Mortgage Rate Lock Extension Fees?

    To extend your locked-in interest rate, you can expect to pay around 0.3 to 0.4% of the total loan amount. However, the cost to extend your rate lock varies based on factors like the lender’s policy, duration of extension, and market volatility.

    Some lenders charge flat fees, while others base the lock rate extension fee on a percentage of the loan amount. In addition, the longer your extension, the more you’ll typically pay. For example, extending your rate lock by a week will likely cost less than extending it by 60 days.

    The cost of your mortgage rate lock can increase the cost of homeownership in the same way an interest rate can. Lenders that charge a flat fee for an extension may charge $500 or more, depending on the lender and duration of the extension.

    Meanwhile, many lenders base the fee on a percentage of the loan amount. For example, say a lender charges a fee of 0.25% for a short extension, like 15 days, and your total loan amount ends up being $250,000. This means spending an additional $625 ($250,000 x .0025) to lock in your interest rate.

    However, that amount may save you money in the long run if interest rates increase while your rate is locked in.

    Happy couple saving money on mortgage rate lock extension fees.

    How to Save Money & Avoid Paying Rate Lock Extension Fees

    Securing the best mortgage rate possible should always be one of your main priorities because it impacts your monthly payments and the total cost of the loan. While there are some instances where it makes sense to extend your rate lock and pay a fee, avoiding paying rate lock extension fees can help reduce financial burdens.

    Here are a few tips to help you save money throughout the mortgage process and avoid mortgage rate lock extension fees:

    • Understand the lender’s policies: Before you lock in your rate, ask a lender about their policy on rate lock extensions, including their fee structure. This information will help you avoid surprises later.
    • Consider the overall cost: Always weigh the cost of the extension fee against the potential financial impact of getting a new, potentially higher interest rate.
    • Stay proactive: The best way to avoid a rate lock extension fee is to be proactive throughout the mortgage process and submit documentation to lenders as soon as possible. Delays often arise from incomplete paperwork, potentially forcing a rate lock extension fee.
    • Anticipate delays: If you have a tight schedule, consider initially locking in your rate for a longer period.
    • Understand your timeline: Understanding the timelines for appraisals, inspections, and other stages of the closing process can help you identify and prevent delays early on.

    Secure Competitive Mortgage Rates With Griffin Funding

    Locking in your interest rate can help you take advantage of a great deal that helps you save over the life of your mortgage. However, if you face delays in the mortgage process, you may have to pay a rate lock extension fee if you want to keep your interest rate.

    While these fees can be advantageous and potentially save you money, being protective, submitting paperwork quickly, and communicating with your lender can help prevent unnecessary costs. Ensure competitive mortgage rates and avoid delays in the homebuying process with Griffin Funding. We offer a streamlined application process and typically close within 30 days or less, reducing the need for a rate lock extension in the first place. Apply for a mortgage online today.

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    Frequently Asked Questions

    Do mortgage rate lock extension fees fluctuate?

    Rate lock extension fees don't typically fluctuate like interest rates. Instead, they vary based on the lender, loan terms, and specific circumstances surrounding the extension. In most cases, the fee is a percentage of the loan amount or set price per day or week.

    Can mortgage rate lock extension fees be waived?

    Lenders can waive rate lock extension fees, but it depends on why an extension is needed. For instance, if the lender causes the delay due to a slow mortgage underwriting process, they may waive any fees associated with extending your rate lock.

    In addition, rate lock extension fees may be waived for short extension periods that last only a few days, especially if interest rates have remained relatively stable.

    Should I avoid mortgage rate lock extension fees?

    In general, you should avoid rate lock extension fees since doing so can save you hundreds of dollars throughout the mortgage process. If market rates have increased by the time you need an extension, you might face double the impact of the extension fee and potentially higher monthly payments over the life of the loan when your rate lock expires.
    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.