Rate lock in fees on investment triplex property

[Ivonne Hunter]

Hello to all, I’m recently got into escrow on my very first investment property and when going through all of the fees to close I came across a “lock in rate” fee which is to lock in the 6.125% interest rate at a whopping 4% of the loan amount ($540k) which is an additional $12k. Has anyone ever heard of this.

[Robin Simon]

Quote from @Ivonne Hunter:

Hello to all, I’m recently got into escrow on my very first investment property and when going through all of the fees to close I came across a “lock in rate” fee which is to lock in the 6.125% interest rate at a whopping 4% of the loan amount ($540k) which is an additional $12k. Has anyone ever heard of this.

This is really high for a rate lock fee, I would shop around other lenders

[Ivonne Hunter]

Thats what I thought. Who is this fee paying? The mortgage broker firm? Any suggestions on what financial institution is better?

[Kevin Luttrell]

@Ivonne Hunter yes it’s paying the mortgage company. I haven’t seen a lock in fee in years, and the last one I saw was around $800. Could be that they’re just disclosing their buydown points to you as a lock in fee but I don’t know why they’d do that. Weird.

Shop around.

[Ivonne Hunter]

After further discussions the “lock rate” was lowered to 1.975 which is $7k instead of $12k. According to the mortgage broker this is a mandatory fee that some institutions call discount points, lock-in rate, processing fees, etc. I still don’t understand Why I must pay for a rate at all. I feel overwhelmed, frustrated and like I’m being taken for a fool. There’s so much I have read yet so much I don’t know & understand that at times I want to give up and walk away. My Reba oty & determination keeps me in.

[Ivonne Hunter]

Quote from @Robin Simon:

Quote from @Ivonne Hunter:

Hello to all, I’m recently got into escrow on my very first investment property and when going through all of the fees to close I came across a “lock in rate” fee which is to lock in the 6.125% interest rate at a whopping 4% of the loan amount ($540k) which is an additional $12k. Has I anyone ever heard of this.

This is really high for a rate lock fee, I would shop around other lenders

@Kevin Luttrell I believe it is a buy down rate but then why not say that?! They are telling me I must pay to lock in the rate atleast 4 days prior to closing which makes no sense to me at all. I still haven’t gotten any options in writing which is also troubling.

[Mike Singer]

Seems high to me. A normal margin is 2-3% to the broker. The rate seems competitive for an investment 3-unit. 

[Anastasia G.]

@Ivonne Hunter you can get a second opinion. We have many professionals here who would be happy to review your loan estimate and advise if they can offer something better 🙃

[Mike Bauman]

I’d love to be able to shop lenders but once you’re in the deal it’s hard to stop midstream and change lender. Any experience with this is appreciated. 

[Jay Hurst]

Quote from @Ivonne Hunter:

Hello to all, I’m recently got into escrow on my very first investment property and when going through all of the fees to close I came across a “lock in rate” fee which is to lock in the 6.125% interest rate at a whopping 4% of the loan amount ($540k) which is an additional $12k. Has anyone ever heard of this.

 You are not paying a lock in fee, but rather discount points. (no idea why your lender called it a lock in fee). These discount fees are caused by what are called loan level pricing adjustments. (or LLPA).   The LLPA's are a fee that Fannie/Freddie charge the lender to deliver the loan to them. So, of course, it gets passed on to you but is NOT necessarily lender profit. For a non-owner occupied duplex assuming 25% down and 740 or higher credit score  you are paying 3.375% in LLPA adjustments.  Those only increase if you credit score is say 700 instead of 740.

Your lender priced the loan (if the LO understands this or not is not clear) with the 4% discount to get the rate down to 6.125%. Other wise, the LLPA would have to paid in a much higher rate. The link directly from the source of the LLPA's right here:  Fannie Mae LLPA matrix

There are programs that are NOT conventional that do not require the above LLPA adjustments which will often lead to lower rate and/or lower upfront cost in the form of the discount. We do a ton of second homes and non-owner occupied properties, and a very high % are down with a product with no LLPA because they work out better for the borrower.  The issue is that most lenders not have access to any full documentation programs other then conventional which requires the LLPA adjustments that make non-owner occupied and second homes much more expense.