Mortgage Rate Lock: When and How to Lock In Your Rate
Key Takeaways
● Mortgage rate locks allow buyers to secure an interest rate while their loan is being processed.
● Common lock periods are 30, 45, or 60 days, although specific lenders may offer longer or shorter options.
● Some lenders offer a " float down " mechanism for buyers who locked a rate and rates dropped before closing.
● If your rate expires before closing, you risk losing your rate or paying for a rate-lock extension.
Interest rates for mortgages can fluctuate daily. Locking your mortgage rate can guarantee the interest rate you are offered for a limited period of time when you apply for a mortgage. If you plan to buy a home, a rate lock can bring you peace of mind by protecting your rate from even the slightest fluctuations, which could otherwise increase your monthly mortgage payments and the total cost of your loan. Understanding how mortgage rate locks work, when to lock a rate in, and what options are available if rates move can help you make a more informed decision during the home financing process.
What Is a Mortgage Rate Lock?
A mortgage rate lock keeps your interest rate the same from the beginning to the end of your loan approval process. Interest rates are usually locked in for a predetermined period, such as 30 or 60 days. If you receive a mortgage rate offer you like, locking the rate can guarantee you’ll keep that rate if your home loan closes before the expiration of that period, assuming there’s no change in your financial condition or loan parameters.
If you decide against locking your interest rate and then the market shifts, inflation rises, or there’s a policy change at the Federal Reserve that causes the prime rate to change, you could find yourself closing with a higher interest rate than you were initially offered.
How Does a Mortgage Rate Lock Work?
When you apply for a mortgage, your lender might allow you to lock your rate at various points in the approval process; you might be able to initiate the process once your loan estimate is distributed, while the loan is processing, or once it’s approved. It can take your lender a few weeks to process your loan, during which your rate can change at any point, so be sure to pick a lock period that gives you enough time to get to the closing table and specifies the terms being locked, the expiration date, and any fees associated with the lock.
If your rate lock expires before closing, you risk losing the rate you’ve locked in. Some lenders will reprice your loan based on the prevailing interest rate and points at the time of expiration, which could increase borrowing costs. If rates fall significantly, some might be willing to relock in a better rate for a fee (or as a special benefit), but it’s important to ask your lender about extension fees, relock policies, and what circumstances could affect your locked rates terms.
When Can You Lock In a Mortgage Rate?
Many borrowers lock their mortgage interest rate when they submit a mortgage loan application. Some mortgage lenders may require you to be prequalified or preapproved before offering a rate lock, while others might require you to have a seller accept your offer first.
Locking in your interest rate typically contains a certain level of risk. Since mortgage rates can change daily, there’s a chance rates will rise or drop after you lock your rate. There’s no way to predict which way the market will trend, so it’s a good idea to ask your lender how long you’re able to wait to lock in your rate to ensure you’re getting the best mortgage rate possible.
Rate locks aren’t just for those buying a new home. Existing homeowners can do it when refinancing their mortgage. If that’s you, you may want to lock in a rate immediately after you find a refinance loan option with a desirable rate.
When Should You Lock In a Mortgage Rate?
Timing is everything when locking in a good rate, and market conditions can heavily influence the decision. If interest rates are trending downward, you may want to wait to lock in a lower rate. If rates are increasing or unpredictable, it might be wiser to lock in a rate as soon as you can.
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Key Considerations About Mortgage Rate Locks
Although mortgage rate locks can be useful resources for some buyers, here are some factors to keep in mind before securing a rate.
Rate Lock Expiration
Some lenders allow you to extend your rate lock, but this can come with an additional fee. When you initially lock your rate, don’t be afraid to ask questions about the lender’s rate lock period, their rate lock extension policy, and your available options. It’s a good idea to confirm that your rate lock period extends at least through your scheduled closing date. You can help your lender speed up the mortgage process by responding quickly to requests for information and documentation.
Mortgage Rate Lock Fees
Some lenders may charge a fee or a percentage of the loan amount as a rate lock fee. If you lock a lower rate, you may be able to quickly recoup the cost of the mortgage rate lock. Mortgage rate lock extensions may also incur a fee if your loan requires additional processing time.
Changes to Your Application
Mortgage rate locks are typically provided based on the information provided to your lender in your application, like your credit score, loan amount, verified income, or down payment. If any of these factors change, even after you’ve locked in a rate, your rate could still change. If an appraisal comes in higher or lower than expected, if your credit score changes, if you change your down payment or the type of mortgage you’re applying for, these could all result in lenders adjusting your secured rate.
Float-Down Option
Some lenders offer float-down options, which allow buyers to swap their locked interest rate for a lower one if rates decrease before their loan is finalized. These services usually come with a fee (sometimes paid by the lender) and are treated as an add-on service to your traditional mortgage rate lock.
The secured rate typically has to drop below a certain threshold to be eligible for a float-down, usually around 0.25%. Before locking your rate, ask your lender if they offer float-downs, how much rates would need to fall for you to benefit, if they expire, and how much these services might cost.
How to Lock In Your Mortgage Rate
Most borrowers lock their rate after they’ve been preapproved and have signed a purchase agreement on a home, but some lenders may allow rate locks earlier in the process. The exact process will vary by lender, but generally, locking in a rate involves applying for a loan, reviewing your loan terms, selecting a lock period, and aiming to close before the lock expires.
1. Apply for a mortgage: The process begins once borrowers submit a loan application and provide all necessary documentation for review.
2. Receive a loan estimate: Some lenders might lock your rate upon providing you with your Loan Estimate—you can find additional details about whether your rate is locked at the top of page 1 of the Loan Estimate. Loan Estimates contain a projected interest rate, monthly payment, closing costs, and other important mortgage expenses.
3. Choose whether to lock your rate: Once you’ve reviewed your loan terms, you can decide if you want to immediately lock a rate or continue floating it (depending on market conditions). If you opt to lock your rate, you’re locking in the rate offered by your lender on that given day, while leaving it floating means it remains subject to market fluctuations.
4. Lock the interest rate for a set period: If you choose to lock your rate, you and your lender will determine the lock period – or how long it will stay locked for. Common lock periods are 30, 45, or 60 days, though some lenders offer additional options.
5. Close before the lock expires: To keep this rate, you’ll need to close on the property before the lock period expires. If the rate expires before closing, your next steps will depend on what your lender offers; some might reprice your loan, some might cancel the transaction altogether, and others may allow you an extension or float-down.
All of these steps can vary by transaction, as different lenders may approach these processes slightly differently and might have different policies if the rate period expires, or allow buyers to lock rates at different stages in the process.
Mortgage Rate Lock FAQs
Here are some common questions about mortgage rate locks.
How Much Does It Cost to Lock a Mortgage Rate?
Lenders usually include a percentage of the loan amount as the fee for this service built into your rate offer. Typically, rate lock fees range between 0.25% and 1% of your loan amount to lock in a rate.
Does Locking a Rate Commit You to a Lender?
No. When you lock in a mortgage rate, you’re not legally committed to that lender or to completing the loan with them. Typically, you can change lenders after locking, but you may need to redo parts of the mortgage process, and could experience delays, additional fees, or lose your original locked rate.
Is It Better to Lock or Float a Mortgage Rate?
Whether it’s better to lock or float your mortgage rate depends on how close you are to finalizing the loan and current market trends. Locking your rate can protect you if rates are expected to rise, while floating may make sense if you believe rates could fall before closing and you’re comfortable with the risk of rates increasing instead.
Final Thoughts: Choosing the Right Time to Lock Your Rate
A mortgage rate lock can protect you from rising interest rates as your loan is processed, but it’s important to understand the trade-offs before you decide to move forward with a rate lock. In addition to determining whether you’d like to lock or float your rate, think about how long the lock should be, what happens if you can’t close on time, and whether your lender offers services like float-down mechanisms in case rates drop before closing.
Lender policies may vary, so compare lock periods, fees, extension costs, and relock options before deciding. If you’re thinking about buying a home and want to take the next step with Freedom Mortgage, explore mortgage rate options online today.
Angelica Victor is a writer and current senior at Hampton University, where she is pursuing a B.A. in English with a concentration in creative writing. Angelica has completed four internships across three different companies, where she’s held writing, communication, and marketing positions, garnering experience in writing client-facing publications and internal communications. She specializes in homebuying, real estate, and finance-related topics. Angelica always strives to communicate complex, nuanced topics clearly and effectively.
When she’s not working, Angelica serves as the president and senior editor of Hampton University’s campus literary magazine, where she leads editorial directions and oversees annual publications. Additionally, she’s the vice president of the Alpha Beta Zeta chapter of the National English Honor Society, where her leadership informs an attention to language, which she carries beyond academic settings. Angelica focuses on creating content that helps readers understand their options and make informed financial decisions.
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