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 rapidly rising interest rates, borrowers should pay extra attention to their rate quote, and take advantage of a rate lock — that is, fixing or “locking in” the figure offered by the lender.

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 on a home and they actually close, which can take a few months. 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.

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.

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.

A longer rate lock is more expensive, though. 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 locking the lower rate as soon as possible. It’s a gamble, of course, 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 — and while they could keep climbing, they could fall too. It might be helpful to look at rates from the past 60 days to get a sense of how they fluctuate. Also pay attention to when the next Federal Reserve Board meeting is and what changes, if any, it’s expected to make to interest rates.

Reasons you should lock in your mortgage rate

Determining whether you should lock your mortgage rate depends on several factors. It could be beneficial if:

  • Your current rate is affordable and competitive with others in the area.
  • Market conditions are volatile and your closing day is several weeks off.
  • You want peace of mind knowing your rate will remain the same until closing — and you won’t be socked with an unexpectedly higher monthly payment.

Important considerations before locking your mortgage rate

There are also a few disadvantages related to mortgage rate locks to be mindful of:

  • You could forfeit substantial cost savings if rates fall in the near future.
  • You have to pay a fee for it.
  • The rate lock could expire and result in additional costs for you.

How to lock in your mortgage rate

Most mortgage lenders offer you the option to lock in your mortgage rate after your loan application has been pre-approved. You’ll want to implement the lock before the mortgage goes through the underwriting process.

Call or contact your mortgage lender and ask them about a rate lock. They will likely want you to provide a time frame for the lock, but will often allow you to lock your rate for a period. They will provide additional details to you, including any fees associated with this process.

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:

  •  Initial rate lock fee: You might have to pay the initial lock rate fee upfront, but it’s typically included in the cost of the rate you receive.
  •  Rate lock extension fee: If you need to extend the lock, lenders usually charge an additional fee, typically 0.375 percent 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 contract period, up to closing day?

What to do if interest rates fall after you lock in your mortgage rate

If your rate lock came with a float down provision, you’ll likely be eligible for the lower rate. You may be able to take advantage of this benefit after the fact by inquiring with your lender. Be mindful that it comes at a cost and may come with limitations.

Otherwise, you have the option to apply with a new lender. This approach can be time consuming and costly, particularly if the initial lender charges a cancellation fee. The closing may also be delayed and cause you to lose out on the home if the seller has a closing deadline or is unwilling to work with your new closing date.

Either way, consider using a mortgage calculator to determine how much you could save with a different rate. Doing so will help you decide which option is best or if it’s most sensible to keep the rate you currently have.

Bottom line on locking in a mortgage rate

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. If interest rates are volatile, it’s a trickier call — but if they’re trending upwards, you might also want to lock in a rate, lest they climb further before the closing and make the home purchase unaffordable.