Are you refinancing your mortgage now due to depressed interest rates? Smart move! Mortgage rates are at all-time lows. You just need to be aware of all the fees that go along with refinancing a mortgage. A rate lock extension fee and a relock at market rate fee are two fees that are coming up more now given it's taking longer to close refinance nowadays.
Rate Lock Extension And Relock At Market Rate Fees
To illustrate mortgage refinance fees, below is a final refinance statement that shows all the fees (Debits). As you can see from the statement, the fees add up if you don't have any Credits from the lender. You will also notice the rate extension fee and relock at market rate fee.
Despite all the fees below, the refinance is actually a no-cost refinance due to the $6,131.22 lender credit that covers all the fees. That said, there is no free lunch. If you get a lender credit, you ultimately paid a slightly higher interest rate than you could have gotten.
One of the most curious fees is the Relock at Market Rate fee and the Rate Lock Extension fee. Let's review both of these fees in more detail.
Relock At Market Rate Definition
The Relock at Market Rate fee only applies if a customer has locked in their mortgage rate. In the initial stages of a mortgage refinance, you'll feel out your lender to see if they're a good fit. You're also hoping that during this process, mortgage rates go lower so you can lock in your rate and initiate the process.
Once you lock in you rate, this is where the Relock at Market Rate kicks in. What a Relock at Market Rate lets you do is float down the rate to the current market rates only if the lender can provide you with a lower rate.
In this example, to relock the rate to the current market rate Wells Fargo charged a .125% Relock at Market rate fee. Generally, Wells Fargo covers this home loan refinance cost. But each bank is different.
Rate Lock Extension Definition
Generally, refinance rates are locked for 30 – 60 days in a normal market. When mortgage rates tank out of the blue, demand for refinancing and buying a new home increases. As a result, rate lock extensions may often be required because the refinance or underwriting process may extend out to 90 – 120 days.
If for some unseen reason your bank was not able to close your loan in 60 days they would have to extend the rate lock. This is what is meant by a rate lock extension.
If the lender is at fault for taking a longer period than promised, the lender pays the rate lock extension fee. If the borrow is at fault, then the buyer pays the rate lock extension fee. In the above example, the buyer is paying $875.89 for the rate lock extension (shown in the Debit column).
More Rate Lock Extensions Are Being Paid By The Lender
With surging real estate demand due to declining mortgage rates, lenders are having a difficult time handling the new volume of business. As a result, more lenders are paying the rate lock extension cost.
The interesting thing is, the rate lock extension fee really isn't a cost to the lender. Unlike the borrower, the lender doesn't have to pay a fee to itself. Instead, the lender will write the rate lock extension fee as an entry in the final refinance statement.
As a refinancer or homebuyer, your goal should be to NOT pay the rate lock extension fee, even if it is your fault. Simply ask if the lender to waive it. If the lender wants your business, then the fee may be waived. It's similar to calling a credit card company to waive a late payment.
However, if you are really at fault and taking an exorbitant amount of time, then maybe you'll just have to suck it up and pay the rate lock extension fee if you still need the mortgage.
The mortgage industry is pretty tight right now. Only buyers with 20% down and 720+ credit scores are getting mortgages or refinancing from the big banks. Banks learned their lessons from the 2008-2009 financial crisis.
If you can get a mortgage now and take advantage of record-low rates, you are likely going to come out of this coronavirus-induced economic depression ahead.
Don't Let Refinance Fees Scare You Off
I've refinanced multiple properties multiple times since 2005. All told, I've saved over $150,000 in interest so far, and will likely end up saving over $250,000 over the life of my loans. In the meantime, my real estate values have gone up, which is why owning real estate is one of the best ways to build wealth over time.
You should absolutely refinance your mortgage if you can break even within 12-24 months. You can also consider doing a no-cost refinance where all costs are baked in if the rate is lower. That way, if you need to sell the property or want to pay off the loan in full soon after, you won't lose any money.
It's important to take advantage of low interest rates to improve your cashflow so you can take care of your loved ones. Reaching financial independence is all about optimizing savings and increasing your income.
Recommendations For Building Real Estate Wealth
Shop around for a lower mortgage rate: Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. Credible allows you to compare multiple real quotes, all in one place for free. When banks compete, you win.
Explore real estate crowdfunding. If you’re looking to diversify your real estate investments, sign up with Fundrise, the best real estate crowdfunding platform today. It’s free to sign up and explore the various commercial real estate projects all across the country.
I’ve personally invested $810,000 in 18 real estate projects in the heartland because valuations are lower and cap rates are higher. Take a look at the steady returns from Fundrise during times of uncertainty and volatility.
About the Author: Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends most of his time playing tennis, writing, and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.