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What happens if rates drop?

I completed an application and locked in for a VA refi two weeks ago and I guess I am just waiting for the closing.  The lender said it usually takes 30 days.  My question is what happens if the rates drop while I'm waiting?  Do I have to accept the rates I applied for or start over and try to get the lower rate?  I'm in no big hurry I just want the best rate and lowest payment I can get.
  • May 07 2009 - Decatur
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Answers (9)

Best Answer

If rates drop, you have two options: give your current guy a chance to make you happy, or go somewhere else.

If your current lender is a good guy, he should be the one to tell you that rates dropped, and he should be the one with a plan for how to help you benefit from it.
  • May 07 2009
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Andrew has this spot on!"give your current guy a chance to make you happy, or go somewhere else."What??

Why lock? Why not just float until you are ready to close?As Andrew mentioned- secondary market investors will scrutinize all areas of pull through to help evaluate the quality of relationship. The consumer should be given accurate expectations with regards to locking, lock time frames, floating and what happens if the market improves or if they expire prior to funding. Once you lock - you have made the decision to secure those funds for delivery at closing. It's a two way street - you do not want to hear about them going up once you are locked, you expect delivery. So does my investor if they go down. Secondary marketing places a "hedge" to protect those funds from market movement and delivery within the stated period. It's not without a cost. Chris - how do you make your borrower happy when the market moves down after they are locked with you? Move to another investor? Try and negoiate a better position with whom you placed the initial lock? A re-negoiation is never going to current market and may require the loan be approved and closed within 7 days to avoid just renegoiating on a dip and a week later the market is back to where the loan was locked.

Setting the expectations as you have in your post for consumers - is just wrong.


  • May 07 2009
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Troubel T

This is a common question that can be dealt with upfront.  When a lender begins the process with a borrower, the lender needs to explain to the borrower the locking procedure, and both pros and cons.  

It's a bit like gambling..... if you lock now, you hedge against the possibility of the rates going up, but conversely you also may lose some ground if the rates go down.  Keep in mind...this can happen either during the refinance process (prior to closing), or even after the closing.

In my own practice, I empower the borrower with knowledge and advice, but the choice is ultimately their's to make to either "lock" the rate early in the process or to "float" the rate throughout the process.

However with that said, if I have a customer who errors on caution and decides to lock their rate, early-on in the process, then rates drop, I will "go to bat" for them with the investor (prior to closing) and see if I can renegotiate the rate due to the market change. 

Many times (myself included) a lender has an optional one-time float down option...so ask lots of questions to your lender or mortgage company

While we all want the "best value" and the "best deal" for our money, unfortunately no one has a crystal ball that is clear enough to know what is going to happen on Wall Street from day to day. 

However do consider that if rates DO get better in the process and all you lose is an 1/8% (.125)  on the rate due to locking upfront,  the change is probably not going to impact your monthly payment that much unless you are dealing with a very large loan. Being it is VA, probably unlikely.

If I can be of any assistance, feel free to contact me.
  • May 07 2009
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Oh yeah, and 4 weeks ago they were exactly the same as this last week.
I'm talking about the Freddie Averages, which seems to be what the Fin Press likes to quote now. Thank God they aren't spewing BankRate.com bait and switch rates any longer.
  • May 07 2009
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I wonder if T T Roy is talking about the whopping two hundreths of point, each week, for the last three? They total half an eighth. Anyhow, throw the baby out with the bathwater too. They're both dirty.
  • May 07 2009
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Chris and Troubel T,

That is a great sales pitch but the truth of the matter is this not every lender allows you to break a rate lock and if you do there is usually a cost to it...You want the security of knowing your rate won't go up, but you are unwilling to accept the rate you agreed to if rates improve. 

Chris you are a major part of the problem with setting consumers expectations.... that this is no problem and if the lender won't do it go somewhere else.  As lenders scrutinize pull through numbers and begin to eliminate and increase rates to those that fail to close loans they lock!

The best answer cracks me up...Most OP's select the answer they like the most rather than the one that is most accurate.
  • May 07 2009
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Keep what you have and be happy you are getting a 40 year low interest rate. You cant believe what can go wrong by breaking your lock for another lender, as I could list 10 or so potential problems.
  • May 07 2009
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Few lenders, ours included offer a one time free rate float down.
  • May 07 2009
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If rates go up are you willing to accept a higher rate?
  • May 07 2009
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