Question:

What exactly is lock jumping?

Answer:

Lock jumping occurs when a borrower walks away from a locked loan to get a better rate with another lender or broker, thus wasting the loan provider's time, effort and money.

Usually, borrower and lender sign a lock agreement and a lock fee is paid. However, often if the market rates go down, borrowers do not feel obligated to take the lock rate and would request reduction of the rate or would simply go to another broker for a better deal. At the same time if market rates go up, borrowers expect the lender to honor the lock agreement as it is.

It is recommended that borrowers who want to take advantage of floating market rates buy a lock cap. It will not cost much more than a regular lock. The cap will protect them from rising rates, but will let borrowers benefit if market rates decrease and help them avoid lock jumping.

Lock-jumping can usually be prevented with a lock fee.

The borrower will pay it at the time of locking. If the loan is closed, the fee is credited into the loan. If the borrower walks off, they lose the lock fee. Brokers may not be willing to use a lock fee if they are afraid the customer will not lock at all on that account but at the same time nothing is binding the client to take that loan.

Brokers are often willing to take the risk of lock jumping, and they are often not locking the loan with the wholesale lender. This is how extra profit is made by letting the loans float while customers are informed their loans have been locked. If rates go down and the client stays, the broker makes some extra cash. If rates go up, the broker will have to compensate the difference with their own cash.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: