Letter of Offer or LO, is the set of loan agreements issued by the bank upon the approval of your mortgage application. It is a 10 to 20 plus pages document. Although, the bank representative will go through with you before you accept or sign the LO, you shall always seek clarification of the following points. Otherwise, you may incur unnecessary cost for being ignorant.
1. The full redemption clauses of old LO.
For refinancing or equity cash out, you will trigger the termination of the old LO by using another bank money to fully redeem the existing loan.
There are certain clauses for the exit of the old LO. In most of the cases, we shall look into the key information of lock-in period and notice servicing period. If necessary, you shall provide it to your appointed lawyer for the correct interpretation.
2.When does the lock-in period start and end?
You shall always remember that, in any of the LOs, the start date is always the loan disbursement date, not the date you sign the LO. In other words, the actual loan disbursement date is always a few weeks to a few months after you signed the LO. The anniversary date also goes according to the loan disbursement date. If you are not sure about your mortgage anniversary date, you could always consult your current bank and get their official reply.
3. Notice servicing period of old LO
Your appointed law firm will assist you to serve notice of full redemption to your current bank.
Normally, banks require 90 days of notice servicing period, regardless of the lock-in period or post lock-in period. For a seamless dollar-to-dollar refinancing, you shall always review your mortgage 4 – 6 months before the lock-in period ends.
4. “Trap” of Notice Servicing clauses of old LO.
In some SIBOR packages, it requires the borrower to make full redemption on the “SIBOR booking date”, otherwise, there will be charges imposed on you. We have seen some refinancing applicants have bad experiences in falling into this “trap”. No one likes additional charges.
We come across another type of rare “trap” of the notice servicing clauses. The old LO states that, there will be charges if the bank receives notice of full redemption within the lock-in period. Which means, you can only trigger refinancing after the lock-in period. In this type of rare scenario, it is impossible for you to have a seamless refinancing. You will have to pay a higher interest rate for at least three months before you can move your loan to another bank.
5. New LO.
Likewise for new LO, you should be aware about the lock-in period and full redemption clause. These are key info for your near future plan for the next round of refinancing or equity cash out.
After you sign the new LO, the bank will provide you a 6-month time window for switching your residential mortgage from your current one to the new bank. The time window for commercial property mortgage is shorter, or 4 months. This time window should be good enough for your lawyer to serve redemption notice with the consideration of lock-in period.
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