Impact Of Rate Lock Expiration On Your Clients And Your Business
One thing neither you nor your clients want is for a rate lock to expire, both for reasons of costs and the impending impact on client experience. In this post, we’ll go over the mechanics of rate locks, the impact of expiration and the one way QLMS can help you avoid it.
The Mechanics Of Rate Locks
When an interest rate is locked, a lender accomplishes this by hedging in order to compensate for potential upward market movements. Mortgage investors do this by selling other financial instruments that have greater value as interest rates rise.
This all gets a little complicated, particularly if you’re dealing with a big pipeline of loans, but for the purposes of our discussion, what you really need to remember is that the longer the rate lock is, the more risk the interest rate could change.
Cost Of A Rate Lock
Because there’s a cost associated with these hedging operations, there are fees associated with locking a rate, quantified as a percentage of the loan amount. The longer your client wants to lock the rate, the higher the risk of market movement and the bigger the fee.
Initial locks from QLMS may be given for 15, 30, 45 or 60 days. Pricing for these locks is included in your daily rate sheet.
Should you need an extension before the rate lock expires, you can extend the lock up to two times for either 5 or 15 days by paying a fee set based on the pricing sheet for that day.
The Impact Of Expiration
If the client’s rate expires, it’s not a good thing for either you or the client, but let’s quantify it briefly.
On the client side, they’re exposed to the greater of a standard extension fee or worst of market pricing. Worst of market pricing means that the client pays the difference between the original rate and current market pricing in order to relock the loan.
In either scenario, a client ends up paying more in fees to lock the rate again. This becomes a problem for you as a broker because the client might choose to walk away and go with another broker or lender if they feel your pricing is no longer competitive.
If rates are right around where they were when the client locked, a client may decide it’s not worth paying the extension fee, but they’d have to wait more than 30 calendar days to relock the rate. This creates significant risk that they could end up going to your competition.
At the same time, we understand that not everything is always in your control or in the control of your clients. After all, getting a mortgage requires utilizing many third-party services. For QLMS partners, we offer a program that has the potential to give more flexibility for you and your clients.
Our Padlock program is designed to offer our partners the flexibility to allow their clients to do loan extensions with us at no additional cost in order to give them more time to close the loan. It also positions you as a stronger mortgage pro, able to solve problems every step of the way.
Here’s how it works:
For every loan you close with QLMS, partners receive 3 free extension days that can be used to extend any loan currently in the pipeline or newly registered. Every QLMS partner starts out with 20 free rate extension days. In addition, partners can accrue up to 750 days. There are just a few guidelines:
- Extension days are credited to partners and not individual loan officers.
- You can use up to two Padlock extensions, not exceeding 30 days.
- If a loan doesn’t close, the days used aren’t credited back.
This program gives you the ability to adapt and customize your rate extension days to suit your clients’ needs.It’s one more tool in the toolbox. You can learn more about Padlock on our resource center.
Now that we’ve gone over the pitfalls and how QLMS helps you avoid them, you can feel confident in taking the next step to partner with us for even more tools and resources to take your mortgage business to the next level!