Mortgage Interest Rates Change For Mortgage Refinance

Added December 3, 2008 by Ilyce R. Glink

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Summary: What penalties do you pay when you cancel a mortgage loan refinance? A home owner asks about canceling a mortgage loan refinance because mortgage interest rates dropped four days after he filled out his refinance application. Ilyce says to walk away from the mortgage loan refinance, he has to be willing to lose the money he spent on an appraiser. But canceling the mortgage loan refinance is OK from a legal and ethical standpoint so long as he's read his mortgage loan refinance documents and abides by them.

Q: I applied for a refinance loan several days ago and locked the rate. I've also provided all the necessary documentation, such as my employment information, bank records and tax return.

This has cost me nothing other than the $350 I paid the appraiser yesterday. Since locking the rate, current mortgage rates have dropped quite a bit over the past few days.

Would it be unethical of me to cancel the application and reapply for the currently lower rates? I'd most likely apply with another broker since I'm not sure the current broker will want to work with me if I cancel the refinance at this point.

Other than the expense for the appraisal and possibly the credit report, am I obligated to pay any other expenses or fees at this point four days into the application process?

A: As long as you're prepared to walk away from your $350, there shouldn't be anything preventing you (legally or ethically) from walking away from your deal -- but you'll have to read the fine print of the application you signed to be sure. Some lenders will require you to pay additional fees to cancel the refinance. Other lenders may actually work with you to reduce the rate to the lower rate you have found. Still others offer deals that would allow you to float down the rate as rates go down and protect you somewhat as rates increase.

That's why I'm not convinced that your current lender isn't ready to work with you. Call him before you apply elsewhere, since every mortgage lender knows that interest rates have dropped dramatically.

Mortgage Broker Misses Opportunity To Help Client On the other hand, your mortgage broker missed a heck of an opportunity to capitalize on his knowledge and expertise and impress you by calling you with that information that rates dropped. It's not as if there are millions of people trying to refinance and buy homes at this point.

Your broker could have called you and offered you another deal if the loan terms allowed it. He could have even advised you as to what would happen if rates declined and what, if anything, he could do to assist you in that case.

Lenders who stick their heads in the sand at this point in time instead of reaching out to help consumers are going to find themselves down and out sooner rather than later.

In other words, if you call your lender and don't get the response you're looking for, don't feel bad about moving on to a lender willing to work a little harder for your business. But before doing anything, make sure you read the documents you signed with the lender to determine if there are any additional penalties for canceling the refinance transaction.

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