Does a lock commit the borrower as well as the lender

In principal, it does. A borrower who wants to be protected against a rate increase during the lock period, but would like to take advantage of a rate decline, can purchase a "float-down." A float-down provides the same upside protection as a lock, plus an option to reduce the rate if market rates decline. Since it carries more value to the borrower than a lock, and is more costly to the lender to provide, the borrower pays more for it. A lender who charges 1.25 points for a 60-day lock might charge 1.75 points for a 60-day float-down.

Many refinancing borrowers pay for a lock but act as if they have a float-down. If rates decline during the lock period, they demand a lower rate and if they don't get it, they start anew with another loan provider. I call them "lock-jumpers."

I once criticized lock-jumpers, going so far as to compare them to shoplifters. But the following letter caused me to reconsider.

"Why would a 'lock-jumper' be considered a shoplifter? It seems to me that most lenders and brokers don't tell the borrower that a lock is binding on them if rates go down, and generally the borrower doesn't sign anything indicating such a commitment. If they had wanted a commitment, they should have asked for one."

This reader makes a very good point. If a broker or lender allows ambiguity regarding the borrower's commitment under a rate lock, then the borrower is entitled to interpret that ambiguity as he or she pleases. Lock-jumping is OK, in other words, unless the borrower has committed him or herself in writing not to do it.

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Secrets of the Credit Industry

Secrets of the Credit Industry

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