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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 can happen with mortgage lock extension fees, which range from hundreds to thousands of dollars. As the name suggests, this fee is a surcharge to extend your locked-in interest rate beyond the usual 30 to 60 days (or whatever your lender’s typical underwriting period is).
If you take longer than the initial lock period to close on a home, you could incur this fee. The infuriating thing is that you might get dinged by it even if the delay is due to the lender, not to anything on your or the homeseller’s part.
Last year’s rapid rise in interest rates threw a new spotlight on mortgage lock extensions and extension fees. Don’t want to be stuck with these costs? Here’s some advice to follow.
- A mortgage rate lock extension fee is a surcharge to continue your locked-in interest rate beyond the usual period
- These fees often range from hundreds to thousands of dollars
- If you take too long to close, you could incur the fee, even if the delay isn’t your fault
- To avoid extension fees, keep on top of your mortgage application or try to negotiate with the lender
What are mortgage rate lock extension fees?
A mortgage rate lock guarantees that a lender will honor the interest rate of your mortgage for a specific period. For example, if you get a loan offer for a $400,000 loan at 6%, the lender might agree to lock-in that rate for 30 or 60 days. If you close at any point during the rate lock period, you’ll get the promised rate.
Close outside of that period, though, and the rate could change. As an alternative to changing the rate, some lenders will let you extend your rate lock beyond the initial period, at a cost. A rate lock extension fee is that cost: the price you pay to extend the rate lock period.
Keep in mind: There's often no separate fee for a mortgage rate lock; instead, the cost of the lock is baked into the rate you're offered. Not surprisingly, the longer your lock, the higher the interest rate.
Unless interest rates skyrocket, you’ll likely spend more on extension fees than they’d save you. But, of course, it can happen. Case in point: the summer and autumn months of 2022, when 30-year mortgage rates virtually doubled and in shorter loans almost tripled.
How much are rate lock extension fees?
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 fee typically runs 0.375 percent of the loan amount, though the charge can be as high as 1 percent of your total loan amount, says Susan Verbeck, retired chief lending officer at Community First Credit Union of Florida.
On a $250,000 mortgage, that means potentially paying up to $2,500 extra.
The precise amount you pay will depend on the length of the extension. If you’re extending the lock for 15 days, you’ll pay less than if you need to extend it for 30 or 45 days.
How to avoid mortgage rate lock extension fees
You aren’t forced to pay a mortgage rate lock extension fee. If you can close before the initial lock period ends, you don’t have to worry about it. However, even with your best efforts, delays from the lender’s side could slow things enough that your lock expires and you’re forced to pay a fee to extend it. The underwriting process is notoriously slow, and often the single biggest reason closings take so much time.
The best way to avoid lock extension fees is not to need them in the first place.
Ensure your closing date falls within your rate lock period
The most important thing to do is make sure that you schedule the closing for a day that falls within the rate lock period.
When you make a purchase offer on a home, you’ll work with the seller to establish the timeline for the transaction. Make sure to work with the seller to get the closing timeline to align with the initial rate lock period.
Turn in your paperwork in promptly
Getting a mortgage involves a lot of paperwork, so it’s easy to miss a few details. But be thorough: Make sure you fill out all of your mortgage paperwork completely and on time, so the lender cannot blame you for delaying the process.
To make your life easier, have the following ready to send to the lender:
- Recent tax returns
- Confirmation of employment
- Bank statements
- Brokerage account statements
- Statements from any other debts
- Proof of any other income
- Gift letters, if applicable
- A photo ID
Once you’ve submitted the paperwork, be ready and willing to work with and respond to your lender. Be ready to provide any additional information or details the lender might ask for, which can happen often and sometimes very close to deadlines.
Be proactive with your lender
In addition to being ready to provide additional paperwork, be proactive about making sure your loan application is moving forward. Lenders deal with lots of mortgage applications at the same time, so it’s easy for one to fall through the cracks. So, periodically check in with your loan officer to ask how your application is moving forward and if there’s anything else you might provide.
When you do get approval and the final documents, you’ll want to read the details of your mortgage and your closing statement closely. Make sure that the closing date falls within the window of your locked interest rate.
Understand 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.
The first thing to check is how long the initial rate lock period lasts. That will help you plan your closing timeline. Also check how the lender handles delays. If the delay happens because it takes the lender longer than expected to review your documents, will you be responsible for paying the fee?
Also keep in mind that each lender sets its own fees and that you’re free to shop around to find the best deal. For example, some lenders will offer an initial lock of 30 days while others offer 60 days. If you know closing is going to take longer, look for a lender with a longer rate lock period.
You can also use this opportunity to try to find a better rate.
Know how to negotiate
In the world of finance, almost everything is up for negotiation. Be ready to negotiate with both the home seller and your lender to determine who pays which fees and what circumstances determine which party is responsible.
For example, if the delay comes from your lender’s side despite your best efforts to communicate quickly and clearly, try to get your lender to waive the fee. This can happen if the appraisal takes too long because the lender has trouble scheduling it, for example.
If the seller wants to stay in the home longer while they try to find new digs, ask if they can cover the extension fee.
If the closing still suffers a setback due to forces beyond anyone’s control — the home needs an unexpected repair, someone falls sick, a blizzard brings the city to a halt — see if the lender is willing to work with you to waive or discount the fees. 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 Verbeck.
Bottom line on avoiding mortgage rate lock extension fees
Mortgage rate lock extension fees can put a big dent in your savings if you aren’t ready for them. Do your best to make sure your loan application goes smoothly and that all parties follow the closing timeline to avoid these unnecessary costs.