You’ve locked in an incredible mortgage interest rate on your new home purchase. But you’ve just found out it’ll expire before closing on your property. What do you do?
Fluctuating interest rates are an ongoing frustration for anyone buying a new home. Even the slightest increase can mean adding hundreds of dollars to monthly mortgage payments. This is why mortgage rate locks are crucial for homebuyers.
Rate locks expiring are a common – but often overlooked – snag. Here’s what mortgage rate locks are, why they expire, and the practical options at your fingertips to help protect yourself.
What is a Mortgage Rate Lock?
A mortgage rate lock or a “lock-in” secures your interest rate with a lender, guaranteeing a specific interest rate for set period, often ranging from 15, 30, 45, or 60 days. Longer options can be available depending on the lender, according to the National Association of Realtors.
Mortgage rates fluctuate on the daily. Locking in a mortgage rate ensures you don’t end up with a higher rate – as long as you close within the specified timeframe and there are no changes to your application, the Consumer Financial Protection Bureau notes.
However, there are downsides to a rate lock, too:
It can be expensive to extend if you need more time.
You may miss out on a lower interest rate if you’ve locked in already.
Why Mortgage Rate Locks Tend to Expire During New Home Construction
Rate locks can expire before closing for a number of reasons, including:
Construction delays: Bad weather, supply chain delays, and ongoing labor shortages can all push timelines.
Property appraisal variances: Your lender may have agreed to a rate lock, only to have a change of heart after an appraisal. In this case, they may determine your home isn’t set at the right price, changing loan-to-value ratios, which can impact interest rates.
Changes to your application: If your credit score significantly changes or your lender has trouble verifying income, bonuses, or overtime, these may create a material shift in the interest rate you’re eligible for.
Changes to your loan. If you decide to change the terms of your loan, such as fixed over variable, or the size of your loan, your rate lock would no longer apply.
What to Do If Your Mortgage Rate Lock Expires
If your lock-in expires, you may be starting from scratch. That means your interest rate may reset to current market rates, you may have to re-qualify and go through the underwriting process again, or you could face extra fees for an extension on your rate lock.
But you have several practical paths forward. Choose what fits your risk tolerance, timeline to closing, and relationships with your lender and builder.
1. Request a Rate-Lock Extension From Your Lender
Most lenders offer lock-in extensions (for a fee or for free depending on the product). Ask about this early on.
Extensions are usually cheaper than re-locking at a higher market rate. For example, if you’ve secured 4% on a $400,000 loan on a 30-year fixed mortgage, your payments would come in at $1,909.66 a month. But if you lose this rate and secure 5%, you’d see monthly payments jump to $2,147.29. That’s an increase of $237.63 per month – and over $85,000 of total interest over the lifetime of the loan.
On the other hand, according to Bankrate, a rate lock extension fee runs anywhere from 0.25 percent to 1 percent of your total loan amount, or a flat fee.
In some cases, you may still need to go through the underwriting process. Check with your lender and keep your credit score, income, and debt levels in line to make sure you can still secure a competitive rate.
2. Negotiate with Your Builder and Lender Together
Many builders have preferred lender relationships and can help secure extended locks, bridge financing, or temporary solutions – sometimes at a lower cost than retail lenders can offer individually.
Builders who want to keep the sale moving will often push lenders to be cooperative. Explain the construction delay and ask your builder’s rep to intercede. If you’re already working with your builder’s preferred lender, they may be more lenient with rate extensions.
3. Shop Around with Other Lenders
Consider yourself a free agent, ready to lock in a better deal. You can switch lenders but remember: a new lender will start underwriting from scratch and that can add weeks unless everything is turnkey and fast.
If time is on your side, you may be able to start with a new lender. Ask about their timelines and how soon they can get your loan out the door.
4. Renegotiate Contract Dates with the Builder
If delays are significant, you may need to negotiate an updated closing and possession date, and any concessions (closing cost assistance, credits, upgrades). Put any updated agreements in writing.
Get clarity on the situation so you’re armed with information for your lender.
5. Understand Your Situation
Make sure you have paperwork that clearly outlines your:
Rate lock confirmation (date, interest rate, lock length)
Lender’s extension policy and extension fee schedule in writing
Builder completion schedule and most recent status updates
Contact info for your builder rep, lender loan officer, mortgage processor, and title company
A “Plan B” lender list, including names and phone numbers, who do new construction loans quickly. You may even have a mortgage broker on speed dial who can help you should your rate lock expire.
