Getting slapped with a hefty fee is not the way you want to start out with a brand-new mortgage, especially if you’ve been charged for something that wasn’t your fault.
But that’s what happened to some Wells Fargo borrowers. They locked in mortgage rates and then had to pay fees to extend their rate locks because of delays they weren’t responsible for. It was the bank that had slowed things down.
Now, as part of Wells Fargo’s larger effort to clean up bad policies, the bank is refunding some of the $98 million it charged customers for extending mortgage rate locks in recent years.
Wells Fargo isn’t the only mortgage lender with rate lock extension fees. Even when applied properly, they can range from hundreds to thousands of dollars.
Don’t want to be stuck with these costs? Follow this advice.
Get your paperwork in promptly
The best way to avoid a rate lock extension fee is to make sure you fill out all of your mortgage paperwork completely and on time, so the lender cannot blame you for delaying the process.
“If you didn’t get all of the mortgage documents in, or you moved money around or your credit score changed in the process — all of those things can cause the loan to get declined or reset,” says Brian Koss, executive vice president of Mortgage Network.
Respond quickly any time your lender asks for more information, which can happen often and sometimes very close to deadlines.
Be proactive on your mortgage
Lenders juggle multiple mortgage applications at once, so check in with your lender frequently. Ask how your loan application is moving forward and if any more information is needed.
Keep in mind that lenders are human and can make mistakes. You’ll want to read the details of your mortgage and — if you’re buying a home — your sale contract closely. Make sure that the closing date falls within the window of your locked interest rate.
Know how to negotiate
You may be able to negotiate who will be responsible for paying any rate lock extension fee and under what circumstances.
For example, when you’re buying a home, the sellers may delay the closing if they can’t get into their next home in time. You can request within the sale contract that the sellers pay your rate lock extension fee in that situation.
Some closings are delayed because an appraisal takes longer than expected, or if something happens outside of your control, such as if a storm damages the property. In those cases, it’s important to talk with your lender, because it might give you a break on the lock extension fee.
If the delay “wasn’t the consumer’s fault or our fault, we’ll probably work with that person and give them another 10 days,” says Susan Verbeck, chief lending officer at Community First Credit Union of Florida.
Know your lender’s policy
It’s critical that you ask your lender upfront about its policy on rate lock extension fees, including when you might be required to pay them.
Wells Fargo says that in September 2013, it changed its policy — and things went awry.
The new policy was “not consistently applied, resulting in some borrowers being charged fees in cases where the company was primarily responsible for the delays,” the company said, in a statement.
Wells Fargo says it now has a centralized team that reviews all rate lock extension requests to make sure the fees are being applied consistently.
Know that lenders’ fees can vary
When you’re shopping for a home or are looking to refinance an existing home loan, be aware that lenders set their own terms for how long they will lock in a mortgage rate and what they charge if more time is needed.
Rate locks for a traditional 30-year mortgage typically last 30 or 45 days, though some lenders will go up to 60 days. If you need to extend beyond that, the charge can be as high as 1 percent of your total loan amount, Verbeck says.
On a $250,000 mortgage, that means potentially paying up to $2,500 extra.
“When it comes to the extensions, pay attention,” says Koss, of Mortgage Network.