Rate lock and loan amount

[Jennifer Knestrick]

I realize this will simply come down to bank policies, but I’m curious what’s typical.

In the the midst of a 1031 exchange, we qualified for a mortgage on the replacement property at $2.9M, and rate locked in mid July. I made the banker aware early and often that we wanted to apply up to the max amount, but would possibly borrow much less (like $1.3M) if we decided to exchange into one property, not two.

OK, so the rate lock occurred. I didn’t sign it, the majority partner did, and when I talked to the banker yesterday, she was going back to underwriting to check if we can reduce from the offered $2.9M without penalty. She’s thinking there would be a penalty. The prepayment terms on the loan are 5% in year one. Again, I haven’t seen this rate lock doc yet (ask for it of course) but am surprised that the rate lock was the loan balance milestone and am curious if this is standard. 

Can mortgage experts comment?

[Caroline Gerardo]

The lender committed to a longer than 30 day lock? Interest rates have not changed but a sixteenth of an inch up and down in the last 30 days. You can switch lenders if they want a cash non-refundable extension fee or high extension fee, probably get same deal, but it is not nice. Partner signed an agreement, what does it say?  No one can tell you the lender policy without knowing who the name of the company lender. There are many jumbo lenders, also don't know your particular situation.  Rate locks are sold to secondary market in packages. A non QM lender commits say 20 million dollars with of a number of loans to be delivered to the investor on a certain date. The investor prepares the $ and nods based on market. A jumbo without a specific address (TBD) was a risky commitment for your lender to make, now they have a hole to fill and squeeze yours into another box of deals perhaps sold to some other investor. Jumbo investors are: Wall Street/ hedge funds/ pools of high net worth guys in suits. The investor cares about their clients who expect a rate of return. Your lender may pay a penalty for not delivering or get worse terms next package sold to same end user.  Only a very few lenders offer jumbo with their own cash and keep them long term, rates are too low to make a long term buck.