Rate Lock Expiration: How It Impacts Your Business And How To Avoid It

young couple signing document with loan officer

Lauren Nowacki

January 3, 2022

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 one way Rocket ProSM TPO 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 Rocket Pro TPO may be given for 30, 45, 60, 90 or 180 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 three times for either 5 or 15 days by paying a fee of up to a 0.25 point. 

The Impact Of Expiration

On the client side, they’re exposed to either the standard extension fee or worse of the market – whichever is greater. 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. In the event your client chooses not to extend the rate before the lock expiration, they will have to wait 30 calendar days to be able to relock at current-day pricing, which could be higher and, thus, cost them more money than just paying the extension.

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 our partners, we offer a program that has the potential to give more flexibility for you and your clients. 

Rocket Pro TPO Padlock

With our Padlock, you have the opportunity to offer your clients free rate lock extensions at your discretion, which positions you as a stronger mortgage pro, able to solve problems every step of the way.

Here’s how Padlock works:

For every loan you close with us, you receive three free extension days that can be used to extend any loan currently in the pipeline. Every Rocket Pro TPO 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.

Padlock 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. Learn more about Padlock in PathfinderTM by Rocket by searching “Padlock.”

If you aren’t working with Rocket Pro TPO yet, partner with us today to get Padlock and many other benefits, all designed to grow, strengthen and protect your business.