Mortgage Rate Lock: When Do I Lock In My Interest Rate?

A mortgage rate lock freezes your interest rate until loan closing to protect your homebuying power from rate hikes.
Barbara Marquand
Hal M. Bundrick, CFP®
By Hal M. Bundrick, CFP® and  Barbara Marquand 
Edited by Alice Holbrook

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It's tough to keep up with mortgage rates when they're climbing as fast as they have this year.

But once you've been approved for a home loan, you can stop your rate from increasing with a mortgage rate lock — a move that could save you thousands of dollars over the course of the loan.

Here's what you need to know about locking in a rate.

What is a mortgage rate lock?

A mortgage rate lock is an offer by a lender to guarantee the interest rate of your loan for a specified period of time. The lender may charge an extra fee or include the cost of the rate lock in the loan. The lock period usually extends from initial loan approval, through processing and underwriting, to loan closing.

Once locked, the loan’s interest rate won’t change — no matter what's happening with the economy — barring any changes to your application details. You’re protected from higher rates, but you won’t get a lower rate, either, unless you have the option for a one-time "float down."

Rate locks can be voided if the information provided on your application changes, such as the property appraisal, or your credit score, income or employment, or there is a revision to the loan itself, such as length or type of mortgage.

When should you lock a mortgage rate?

The time to lock in the mortgage rate is after you've shopped lenders and are approved for a home loan. That loan should have a rate you feel comfortable with and a resulting monthly payment that fits your budget.

Don't drive yourself crazy by trying to forecast mortgage interest rates, which can be up one day and down the next. Even noted economists can't predict rates with 100% accuracy because events that shape the economy and impact rates are unpredictable.

How long can you lock in a mortgage rate?

Lock periods can be 30 days, 60 days or more for standard purchase mortgages. Construction loans have longer lock periods, such as 12 months. Select one that allows plenty of time to closing.

The average time to closing for purchase mortgages was 50 days in the last six months, according to ICE Mortgage Technology, a mortgage industry data provider.

Ask your lender the expected time to closing, and then consider building in a bit of a cushion to your rate lock period.

How to lock in a mortgage rate

Your mortgage lender will probably offer a rate lock after your initial loan application has been approved and before it’s submitted for underwriting, though rate lock policies vary by lender.

Ask about a rate lock if a loan advisor doesn’t mention one. Find out about available rate lock periods and whether there is a fee.

How a mortgage rate lock works

The best way to understand how a rate lock works is to consider how interest rates might move.

If mortgage rates stay the same: Mortgage rates can dance around for weeks, going up or down a notch or two — and end up right where they started. In that case, you might feel as though whatever you paid for the rate lock, if anything, was wasted. But remember, your goal was to prevent rising rates from rocking your budget. A rate lock ensures that they won’t.

If interest rates go up: You’re protected. Your interest rate is set. That’s when a rate lock is well worth the price.

If mortgage rates go down: Unless you have a one-time "float down" option on your lock, you’ll miss the lower rate.

A "float down" option lets you snag a currently available lower interest rate. You can usually trigger it only once.

A "float down" option is most often associated with new construction loans and longer-term rate locks, though it never hurts to ask your lender if a "float down" is available for your loan. The terms, parameters and pricing of a "float down" option will vary widely among lenders.

How much does a rate lock cost?

Some lenders charge for a rate lock, though others offer one for free. But like any other "free" service provided by a lender, the fee is baked into the rate you’re offered.

If you do pay for a lock, fees vary widely according to the amount and term of the loan, as well as the length of the lock-in period, and are measured in basis points, such as 25 bps, or 0.25% of the total loan value. A 0.25% rate lock fee on a $200,000 loan would be $500.

Is a mortgage rate lock worth it?

When rates are going up, a mortgage rate lock is well worth the cost.

Consider a $400,000 home financed for 30 years at 7%, with a 20% down payment. Just a quarter point (0.25%) rise in interest rates will kick your principal and interest payments up $54 a month, to $2,183 from $2,129. Over just five years that additional amount will total $3,240.

By comparison, a 0.25% fee to lock in the 7% rate would be $800.

Over a six- to eight-week period, from entering into a contract to signing the closing documents, it’s quite possible for rates to move much more than a quarter point.

Worst of all, not locking in a rate can mean having to come up with a higher down payment. If your payment increases because of higher interest rates, a lender may require more money upfront to meet its lending requirements.

Should I lock my mortgage rate today?

Explore today’s mortgage rates for your area and credit score to get a benchmark for your mortgage rate, and ask your loan officer for input about where rates are headed.

Locking in the rate today makes sense if:

  • The rate is affordable and compares well with those offered by other lenders.

  • The rate lock term is long enough to carry you through to closing.

  • You think rates may go up.

  • You want the certainty of a locked mortgage rate.

What happens if my rate lock expires before closing?

If the rate lock expires before closing, your rate will begin to float with daily interest rate movements. To prevent that from happening, talk to your lender before the expiration date to see if the lock can be extended. If you’ve been responding promptly to each information request from the lender, the delays may not be your fault — and you might get a little extra time.

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