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Rate-lock extension fee vs. letting the lock expire
Our mortgage is locked at 6.625% on a $420,000 loan, but the closing may be delayed about 10 days past the lock expiration date. The lender quoted a 0.25% extension fee, which would be roughly $1,050, and says the current rate is 6.875%. They also mentioned we might be able to relock at market pricing if the lock expires, but I’m still waiting for the exact relock terms.
How would you calculate the break-even point here? At 6.875%, the payment increase on the loan amount appears to be around $70 per month for principal and interest, so the extension fee could take roughly 15 months to recover, ignoring the effect of the fee on cash-to-close or APR.
I’m also trying to determine whether the extension should be waived if the delay is caused by the lender, appraisal, underwriting, or another party. Before deciding, I plan to ask for:
- The exact extension cost and whether it’s based on the loan amount or points
- The lender’s written relock rate and any relock fee
- Whether the lock has a float-down provision
- Whether the extension preserves the original loan terms and credits
- Who caused the delay and whether the lender has a policy for lender-related delays
For those who’ve dealt with this, did you compare the extension fee against the payment difference over the expected time you’ll keep the loan, or did you use a different break-even calculation?
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4 replies
Put the extension and relock options into one written comparison before treating the roughly 15-month recovery period as decisive.
Have the lender show:
- Extension cost, including whether 0.25% is charged on the $420,000 loan amount or calculated another way
- The exact relock rate, points, and any relock fee if the lock expires
- Whether the original lender credits, discount points, and other terms survive under each option
- Cash-to-close and APR for both scenarios
A relock with a slightly lower note rate could still be worse if it removes a $3,000 lender credit or adds points. On the other hand, paying the $1,050 extension may not be worthwhile if the relock preserves all credits and the rate difference is small. The lender’s written policy on delays caused by underwriting, appraisal, or the lender itself also matters, since that can change who should absorb the extension cost.
One more item belongs in that written comparison: confirm whether the $1,050 extension fee is refundable or credited if the closing doesn’t occur. Some lenders treat it as earned once the extension is granted, while others may apply it to closing costs or refund it under specific cancellation conditions. That matters if the delay could run beyond 10 days, because you may pay for an extension and still need another one or a relock. Get the trigger and any refund/credit treatment in writing, not just the quoted 0.25%.
The roughly 15-month figure is a useful first pass, but it can overstate the benefit of the lower rate. For anyone weighing a lock extension against a relock, compare both options over the same expected holding period and discount the monthly payment differences to today’s dollars. If the loan may be refinanced or the home sold within, say, three years, a $1,050 extension cost may not be recovered even if the nominal monthly savings exceed it.
Include the remaining principal balance under each rate at that future date. A lower rate can leave a slightly different balance, and that matters if the loan is paid off early. The comparison should show:
- Upfront extension or relock cost
- Present value of the payment difference through the expected payoff date
- Remaining balance at that date
- Credits, points, and APR under each written offer
That doesn’t make an extension automatically wrong, especially if the relock would remove credits or the holding period is long. It just keeps a payment-only break-even from being treated as the entire decision.
Confirm exactly when the lender treats the lock as expired before assuming a full 10-day extension is needed. The written terms should specify whether expiration is tied to a calendar date, a particular time, or the scheduled funding date, and whether any documented grace period applies.
That timing can change the comparison diver48 described. A closing near the deadline may require a shorter extension, or none, depending on the lender’s written funding window. Also confirm whether the fee is charged per calendar day or in a fixed extension block.