Ask your attorney if your contingencies protect you.
The words/terms of the contingency may have included some interest rate clauses.
You may also need to apply to another lender.
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"the buyer shall apply for a conventional bank or other institutional mortgage loan of $_______ at prevailing rates, terms and conditions. If despite the buyer's diligent efforts a commitment for a loan cannot be obtained before _____, then the buyer shall have the options of revoking this agreement by written notice tot the seller and.or the broker representing the seller prior to the expiration of such time, whereupon all deposits made by the buyer shall be forthwith refunded, and this agreement shall become null and void without further recourse to either party."
If the bank is saying you do not qualify at the higher rate..then they would give you a letter of denial which you can forward. If it is you that doesnt like the higher rate but you still qualify...you need to consult with your attorney. The "prevailing rates" is what is open for discussion as I see it. I assume you have already signed the Purchase and Sale agreement and are not just at the offer contract.
I hope this helps.