Is it Ethical to Re-Lock your Mortgage Deal when Rates Drop?

by Darwin on March 22, 2009

With mortgage rates hitting record lows last week following the news that the Fed would buy up to $300 Billion in Treasury securities on the open market, there was a mad rush to lock in the best rates and inevitably, there was a fair amount of “mortgage envy” on behalf of borrowers who had recently locked.  If you just locked in a rate at 5.0% earlier in the month and your neighbor’s getting 4.75% for the same closing costs for a similar mortgage (and you have similar creditworthiness), that raises an ethical and financial question:
If You Already Locked in a Rate with a Mortgage Broker, is it Unfair or Unethical to Seek to Re-Lock or start comparing mortgage rates again?

Argument Against: On one hand, you made a deal, right?  After you locked, how would you feel if because rates went up noticeably, your lender called up and said they needed to raise the rate on your due to market movements?  You’d be furious, right?  What was the point of locking?  After perhaps a nominal fee to lock your mortgage rate and start the approval process, there are tons of man-hours that go into assessing your financial statements, credit reports, income verification, etc.  They run a risk each time they start this process since the deal isn’t closed until closing itself and in theory, you could walk – so they’re going on faith that you’re going to honor an agreement you made to go through this the deal.
Argument For: On the other hand, are consumers supposed to put aside a 30 year savings totalling perhaps tens of thousands of dollars over a commitment they made to someone or some company they don’t have any actual connection with?  Would the person on the other end do it for them?  Heck, people are walking away from their homes altogether because they’re underwater; this would pale in comparison.  In this day and age, you hear more and more often, “You have to look out for yourself”.  The Net Present Value of your mortgage difference could be enormous, even if you have a lower monthly cost 40 year loan.
I’d be interested in your opinions and then I’ll share my opinion on the matter.
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1 MasterPo March 23, 2009 at 11:54 pm

While an interesting topic for brandy conversation, it’s a riddiculous notion – that’s unethical. (no insult intended)

The bank is *still* making good money from you whether it be at 5% or something lower. Whereas if the bank tries to up your rate before close they risk loosing your business altogether.

Don’t think this sort of thing doesn’t happen all the time in business anyway. How many times have you bought something then went back and returned it after having found it mich cheaper else where?

2 Finance Entry March 24, 2009 at 1:37 am

Advice for First Time Buyers

A number of factors have led to the number of first time buyers purchasing property falling over the past year, and these factors include lack of mortgages, the effects of the global credit crunch, and falling property prices.

You need to bear in mind that there are many different upfront fees that you may have to pay out when taking out a mortgage, such as solicitor fees, mortgage arrangement fees, and a hefty deposit, and in order to work out whether you can even afford to take out the mortgage you need to determine whether you have the necessary funds available for the upfront payments. It is important to go through your income and outgoings thoroughly to ensure that you can comfortably afford the monthly repayments on the mortgages, as you could otherwise lose the property if you fall into arrears.

Also, as first time buyers you need to bear in mind that it is not just the mortgage repayment that you have to factor into your budget. You will also need to ensure that you can afford to pay bills, pay for groceries, and cover other costs.

3 high interest savings March 24, 2009 at 6:41 am

My partner and I are looking for a mortgage lender. We are 1st time buyers in England(midlands). We would prefer a 100% mortgage but my partner has CCJs(they are all paid off)and I currently don’t work. We have looked into different mortgages but can only get around £75000 and would also need a deposit. This is a problem because all the suitable houses are over £100000 and also, because we have quite a high rent, there is no way we can afford a deposit. Does anyone have any ideas of where to look?
My partner has a good, well paid and secure job

4 ParatrooperJJ March 24, 2009 at 7:45 am

It is not a deal until the paperwork is signed so i would not worry about it.

5 grrlpup April 1, 2009 at 4:29 pm

I view rate-locking as a feature that mortgage lenders provide as an enticement and for our mutual convenience. If another provider can offer a better overall package, there’s nothing wrong with switching.

I financed through my credit union and they required a $700 deposit to cover the appraisal and preparation costs for them. I assume most lenders do something similar to minimize their risk of putting effort in for nothing.

I as an individual do not need to be looking out for the interests of the mortgage businesses! They will do that just fine for themselves.

grrlpup’s last blog post..Kidlit’s Yore

6 justlockedin May 29, 2009 at 12:13 pm

The borrowers’ relationship to the lender is strictly business. Nothing personal. If you can get a better deal elsewhere, then you should be free to do so.

Besides, it’s not like the lenders’ children are going to go hungry just because they’ll lose a few thousand out of the hundreds of thousands they’ll make from your interest payments!

7 Adam June 4, 2009 at 4:51 pm

If you study ethics, it is clearly unethtical. You are violationg the terms of a financial agreement with another human being. The argument for violating the agreement amounts vaguely to ‘everybody else is doing it’ which, per se, should raise the ethicists attention level.

8 Greg October 5, 2009 at 7:25 am

I believe the mortgage lenders have already planned for this by requireing a non-refundable mortgage application fee be paid prior to starting the mortgage process. So they are being compensated for their work if you decide to pull out of the deal. Therefore since compensation is being paid this would not be unethical.

9 Morey October 17, 2009 at 12:08 am

“……You are violationg the terms of a financial agreement with another human being.”

What terms of what agreement? The lender has agreed to lock in a rate for you. – What have you agreed to in exchange for the lock-in? Nothing. You have promised nothing in exchange for the lock-in.

You simply have an application for a mortgage pending – an application that you can withdraw at any time. You would not be breaking any agreement that you made, if you did so.

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