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When should you lock a mortgage rate?

Mortgage rate locks
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When it comes to interest rates, every little bit counts. A quarter of a percentage point doesn’t sound like much, but it can mean thousands of extra dollars in interest paid, or not paid, over the life of a typical 30-year loan. In times of rising rates, borrowers should pay extra attention to their rate quote, and take advantage of a rate lock.

What is a mortgage rate lock?

A rate lock freezes the interest rate on a mortgage, usually for a fee paid when you agree to the terms of the loan. The mortgage lender guarantees (with a few exceptions) that the rate offered to a borrower will remain available to that borrower for a stated period. With a lock, the borrower doesn’t have to worry if rates go up between the time they submit an offer and close on the home.

Rate locks typically last from 30 days to 60 days, though they sometimes last 120 days or more. Some lenders do offer a free rate lock for a specified period. After that, however, even those generous lenders might charge fees for extending the lock.

How does a mortgage rate lock work?

A mortgage rate lock protects you from the frequently cycling nature of interest rates. Even if rates increase, you’ll retain your previously quoted, lower rate when you close on your new loan.

That said, if interest rates go down after you lock your rate, you’ll miss the opportunity for a lower rate. The exception to this is if you have a “float down” option with your rate lock, which does allow you to nab a lower rate if rates fall.

What is a float-down mortgage rate lock?

Some mortgage lenders offer a rate lock with a float-down provision. This means that if rates fall within a specific period after your loan is approved, you get the lower rate. If rates go up, you get the rate you were quoted.

There’s a cost to this feature, so consider your options carefully. Rates might not move at all or in your favor, and the float-down means you’ll have to pay a higher interest rate for the life of the loan or shell out money for points you’ll never see again.

When should you lock in a mortgage rate?

Borrowers typically can’t lock in a rate until after the initial loan approval — and they worry that by locking in too early, they might miss the opportunity for a better rate before they complete a purchase, or that they might get stuck paying extra to extend the lock once it expires.

A longer rate lock is more expensive. For example, a borrower who chooses a 30-day lock on a fixed-rate 30-year loan might pay a 4 percent rate and zero points, while a 60-day lock might cost 1 point (equal to 1 percent of the loan) or a slightly higher rate with a half-point.

However, when mortgage rates are rising, you might consider jumping on the lower rate as soon as possible. It’s a gamble, because no one really knows what interest rates are going to do — they’re set based on a variety of factors that can change from day to day. It might be helpful to look at rates from the past 60 days to get a sense of how they fluctuate.

Mortgage rate lock fees

A rate lock can help you save significantly on your mortgage, but you’ll incur some costs along the way. There are two main types of rate-lock fees: the initial rate lock fee and the rate lock extension fee.

You might have to pay the initial lock rate fee upfront, or you might be able to roll it into your loan. If you need to extend the lock, lenders usually charge an additional fee, typically a percentage of the loan amount.

Questions to ask your lender before you lock

Be sure to get a clear explanation of your lender’s rate lock rules. If you lock in a rate too soon and end up going with a different type of loan, your rate lock might be void. Borrowers also can lose a rate lock if their circumstances change — such as a shift in their credit score or in their debt-to-income (DTI) ratio — before settlement. The underwriting process could uncover factors you weren’t aware of or knew were important, so if possible, ask your lender what conditions would void the lock before you commit to it:

  • Does the locked rate change in certain circumstances?
  • Will the rate lock be in effect long enough to cover the entire homebuying process?

How to make sure you’re financially prepared for a mortgage

Before you lock in a rate, make sure your budget is in order and you are financially prepared to apply for a mortgage, including having the cash to cover the rate-lock fee, if there is one. Ask yourself:

Bottom line

Mortgage rates fluctuate constantly, and a rate lock can spare you that uncertainty — for a fee. Generally, if interest rates are relatively low, it’s best to secure a rate lock so you can retain it when your new loan closes.

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Mortgage editor
Reviewed by
President, Real Estate Solutions