Can a Mortgage Company Change the Terms?

Under specific circumstances, a mortgage company can change the terms of your loan prior to closing or afterward. If interest rates change before the loan is finalized, you change the type of loan you’re taking out, your appraisal comes in at an amount you didn’t anticipate, or some other closing cost changes, your mortgage company can change the terms of the loan.

What Happens When Your Loan Is Approved?

Imagine that you’ve found your dream house, completed the reams of papers for your mortgage loan application, and received the mortgage commitment letter. The commitment letter outlines the loan term, interest rate, and other details. At that point, you may be required to meet certain conditions before closing, such as obtaining additional documents, homeowner’s insurance, and more.

Next, the mortgage lender is required by law to provide important disclosure forms. These documents include:

• A loan estimate details information about the loan you applied for. Lenders provide loan estimates within three business days of receiving your application.
• The closing disclosure form provides the final terms of the loan and the accompanying closing costs. Lenders will provide the closing disclosure at least three business days before closing.
• The initial escrow statement provides estimates of the taxes, insurance premiums, as well as other charges that the lender foresees paying from your escrow account during the first year of your loan.

When Terms Can Change Before Closing

After you’ve received the loan details and disclosure forms, here are the circumstances under which fees may change—and why.

Interest rates fluctuate daily, and if you didn’t get an interest rate lock, your interest rate could change at any time between your mortgage acceptance and the closing date.

In some circumstances, even if you have an interest rate lock, your rate can change if there are changes in your circumstances or if you fail to close the loan within the locked timeframe. If you have a rate lock, your interest rate and points shouldn’t change, as long as your loan closes within the lock period. Rate locks mean that your interest rate will remain constant during the lock period—30, 45, or 60 days or longer.

If you choose to get a different type of loan, your home appraisal comes in higher or lower than expected, or your down payment amount changes, your closing costs could change. Finally, your behavior or income could be a factor:

• If you take out another loan, miss a payment, or do something else that changes your credit, your loan and closing costs could change.
• If your employer couldn’t document your income sources, such as overtime, bonuses, or other circumstances, your loan and closing costs could change.

These scenarios are called a “change in circumstances” and indicate that some former agreements are not binding.

Your lender does not control all closing costs. Expenses can change due to circumstances outside of their control. These include:

• Homeowner’s insurance premiums, escrow payments, and prepaid interest
• Fees for services required by the lender, such as title insurance or other required items that aren’t on the lender’s preferred list
• Fees for services that the lender doesn’t require 

Certain fees are allowed to rise and are capped at 10%, so long as there’s no “change in circumstances”:

• Recording fee
• Third-party services from the lender’s written list of preferred providers, unless the provider is an affiliate of the lender, in which case the cost must remain firm

How Your Loan Can Change After Closing

If you choose an adjustable-rate mortgage (ARM), your loan amount will change according to the terms of the mortgage. There are many varieties of ARMs, from 7/1 to 5/1 to 1-year. It’s important to understand the parameters of your loan before signing on the dotted line.

Your property taxes and homeowners insurance premiums might change periodically. Your escrow account, which your mortgage company sets up, typically pays these types of items. It’s likely that over the life of the loan, the amount of the escrow expenses will change and consequently impact your total payment to the mortgage company.

The Bottom Line

In the end, many initial fee estimates will change at closing. The items that should remain the same are the loan terms, so long as you don’t experience any major changes in your financial circumstances.