How to Break a Mortgage Rate Lock

••• form -3 image by Rog999 from Fotolia.com

Mortgage rate-lock agreements are legally binding agreements to hold a mortgage rate for a specified period of time. However, the only party bound to the agreement is the lender or broker. If you have a rate-lock agreement for a mortgage, you can break that agreement simply by not proceeding with the application and the loan officer.

Review the terms of the rate-lock agreement. In most cases, this is a one-page document detailing the rate that is locked in, what the principal mortgage balance will be and when the rate-lock agreement expires. It must include your signature, your co-borrower's signature, if applicable, and your loan officer's signature.

Find other viable, more beneficial mortgage options before you consider breaking the rate-lock agreement. If you have a low rate locked in and abandon it without an alternative, you may end up with a higher rate. This can happen when a new month begins and domestic and international rates adjust.

Lock in a new rate with a new mortgage lender prior to breaking your agreement. This will reduce the stress involved in filling out a mortgage application, pre-qualifying and verifying income and home value.

Abandon your agreement by contacting your original mortgage lender. You need not sign a new document to break the rate-lock agreement. You are only bound to a rate when you sign closing documents.

Warnings

  • You will lose the fee you paid to lock in a rate if you break the agreement. While it is rare, some lenders will charge points (percentages of the total loan amount) to lock in a rate. If you walk away from this agreement, you can lose hundreds or even thousands of dollars. However, most lenders charge a modest lock-in fee, usually between $10 and $50. Do not sign a lock-in agreement with a lender that requires you to pay points unless you are absolutely sure you want the loan.