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The short, un-emototional answer is yes. If you don’t close on your loan, your lock would probably just expire with that lender. Whether you just don’t sign your final loan docs, or you back out of the contract, or some unexpected emergency occurs that does allow you to close, it would all be the same.
However, when we lock a loan with a particular lender for a specified rate and time, we have made a committment to that lender that we will be sending them a loan and closing it with them. The lender puts it on their books as an incoming loan and future income. The current locks on their books help them evaluate their whole portfolio and help them calculate where they want to issue rates. The higher the pull through percentage (# of locks compared to # of actual closings), usually means the lender can be more aggressive on their pricing, which leads to better rates. When they are having a lot of lock fallout (loans that are locked but not closing), then they have to pull back and price rates very conservatively, so then rates are not as good.
Think of it this way. You are planning a dinner party, and get 20 RSVPs confirming they are coming for dinner. You now have to plan food, drinks and entertainment for 20 people. You go out and spend $300 on food, beer, wine, etc. for the party. The night of the party, only 12 people show up. The food that was prepared for 20 only has 12 people eating on it, so a lot goes in the trash. The keg you got and tapped, is now going flat since only 12 people drank off it. The wine you bought has been sitting out open all night, and is spoiled, so that is trashed. Basically, a lot of the money you spent went in the trash. A month later, you plan another dinner party, and get 20 RSVPs again. Remembering last time, you get enough food and drinks for 12 people. This time all 20 people show up, and you run out of food and drink at 6:30pm, and no one is happy with you.
When customers start pulling out of their locks a lot, or irresponsible loan officers get lock-happy and lock the same and several lenders, this will cause rates not to be as good.
Also, as a Broker, we have a relationship with each lender, and our individual pull through ratio is monitored also. If that ratio gets too low, that lender will cut us off. So you pulling out of your lock will also potentially damage the relationship we have with our lender also.
If you have to pull out because of certain circumstances, then that is understanding, but to just back out because ABC Lender across town tells you his fees are $500 less, or his rate is .125% better, that is what is frustrating for us a Loan Officers. Plus, ABC Lender knows he has nothing to lose by telling you that, so things will probably change once you move your loan over their anyways. The best thing to do is find a broker/lender/banker that you are happy with and trust as a person and find the loan and rate that is right for you and your situation, lock it, and close like you committed to doing. I hope this helps answer your question.
As a mortgage broker I can tell you that as the borrower, you do not have an obligation to the lender to close the loan. For instance, your loan can be locked yet then still be denied by the bank and never close. When we lock a loan with a lender on behalf of the borrower and then the borrower doesn’t close the loan (for whatever reason), we cancel the file. The penalty comes later when the lender audits our account for “ rate lock pull through/fall out ratios.”
Lenders rate their brokers (and this is important when you need a favor from the lender on a future deal) based on loan submission quantity, quality (ie if borrower has any payment default after close), and rate lock fall out. In most cases, " preferred brokers“ (those with good standing in the above area) will receive pricing incentives that other brokers won’t.
In short, as a broker, I would say that your responsibility (and only to your broker) is to honor your broker agreement and close the loan. If you can’t or don’t want too, you will not be penalized, but the broker may in future dealings with the lender they locked with.
As a borrower, what are my responsibilities when I lock a rate for a mortgage? Can I bow out of the lock by just not signing the final loan papers?