Real Estate NewsHow To Assure Loan Rates
Question: I am in the market to refinance my house. I shopped around for the best rate and decided to go with a local mortgage company. I met with the loan officer a week later and he told me that rates had gone up and the rate he quoted me was no longer available. I was surprised that he wouldn"t honor his original quote. My father-in-law says that I"m a victim of "bait and switch", but I have since checked with other companies and it seems that rates have risen everywhere. My question is this: Should I try to force my loan officer to give me the original rate?
Answer: Unless your loan officer issued you a written lock-in agreement, I"m afraid you are subject to market fluctuations in interest rates. A lock-in agreement is a written commitment by the lender that guarantees the interest rate and terms for a specified period of time. This time period should be long enough to get the loan processed and closed.
"Bait and switch" is a generic term to describe the unethical practice of quoting below-market rates to secure the loan application appointment. When the formal loan application is made, the loan officer jacks up the rate.
Were you a victim of "bait and switch"? I doubt it. Interest rates did indeed tick up a bit last week so it doesn"t surprise me that your loan officer is quoting higher rates.
Let me make a guess as to what probably happened: Loan officers are very busy right now because so many homeowners can save money by refinancing. Your loan officer gives out several rate quotes a day and was probably quoting his current rate at the time.
The loan officer should have made it very clear that the quoted rate was subject to change unless locked. The responsibility of ensuring that the customer understands this rests upon the loan officer.
At the same time, I have some advice for folks who are refinancing: If you"re obtaining rate quotes over the phone, be sure to ask what fees and points are charged.
You have to ask about fees and points because they are a cost of financing. If you have a 7 percent interest rate and one point you have a given cost. If you have a 7 percent rate and two points you have a different and higher cost, even though the interest rate remains the same.
Also:
*Ask if and when the rate can be locked.
*Ask how long the lock-in period extends.
*Ask if there is any cost to lock-in.
*Ask if there are any conditions (so-called "weasel" clauses) which allow the lender to change the rate, points, fees, or other terms. (Philosophers might ask if you can have a "lock-in" which allows the lender to change rates and terms.)
Luckily, the practice of "bait and switch" is minimal. But be a smart consumer. If you receive a quote that sounds too good to be true, get specific terms in writing -- and hold the lender to them.
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