Answers to top mortgage rate-lock questions

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If you’ve been comparing mortgage rates, you’ve already encountered one reality about the process of buying a home or refinancing: What you see today might be gone tomorrow. While interest rates change all the time, a mortgage rate lock ensures the rate on your mortgage stays the same, from the initial quote to closing. Consider these key points about rate locks, and how you can use a lock to your advantage.

What is a rate lock?

A rate lock is a guarantee that a mortgage lender will honor a specific interest rate at a specific cost for a set period.

The benefit of a mortgage rate lock is that it protects you from market fluctuations. For example, if your lender locks in your rate at 3.75 percent for 45 days and rates jump up to 4 percent within that period, you’ll still get your loan at the lesser rate.

“Mortgage interest [rates] can change every day and sometimes even multiple times a day, so we always recommend that borrowers lock in their rate,” says Richard Greene, branch manager and loan officer at New Mexico Mortgage Company in Albuquerque.

It’s up to you to seek the rate lock. If you choose not to do so, and you have no rate lock, this is known as “floating” a rate. That’s not always a bad strategy — when interest rates are falling in general, you would want to take advantage of this favorable movement in the market. (The float is typically 30 to 60 days, but it might be longer if you’re willing to pay more in fees to get it.)

However, failing to lock your rate can be costly in a rising-rate environment, which might just be what we’re about to enter. Freddie Mac’s latest quarterly report predicts 30-year rates to rise to 3.4 percent by the end of 2021, and continue rising to 3.8 percent by the close of 2022.

How much does a rate lock cost?

Rate locks aren’t free, but that doesn’t mean you’ll necessarily see a line-item charge for them. Most lenders do not charge a separate fee for rate locks within a certain period of time; the cost of the lock is often baked into the rate you’re offered.

Lenders usually charge an additional fee for extending the term of the rate lock period, however, so ask about what to expect if you need to extend the lock.

When can a mortgage rate be locked?

It depends on the mortgage lender. Some lenders offer a mortgage rate lock once the borrower is preapproved with just an address of a prospective home. Others might wait for the seller to accept the buyer’s offer.

If you lock too early, however, you might end up exceeding the expiration date and facing extension fees or a new rate. So, if you’re just starting to look at properties, it might not be wise to opt for a rate lock just yet — you’ll want to avoid feeling rushed to find a place and close the loan.

Also, keep in mind that the lender can void a rate lock if certain items on your credit report or mortgage application change between the time of your agreement and final underwriting.

The sweet spot is the optimal combination of the interest rate, term and costs. Most lenders won’t lock your rate for less than 30 days unless you’re ready to close, and often offer the same rate for a 15- and 45-day period. Ask about the rates for several lock periods: 30, 45 or 60 days. Any term longer than 60 days gets pricey, so it might be smarter to wait until you get closer to the closing and check again.

How long can a rate be locked?

The answer depends on your mortgage lender. While 30- and 60-day rate locks are the norm, you might be able to find significantly longer options that stretch closer to a full year.

Of course, you might have to pay a higher fee for a longer lock. In some cases, that can be an easily justified cost, though. For borrowers of construction loans, for instance, paying for an eight-month rate lock might save them money in the long run if interest rates rise.

What is a float-down lock?

In addition to a standard rate lock on a mortgage, some lenders offer a float-down lock, which is designed to help you take advantage of lower rates if they become available before you close the loan. Float-down locks come with a win-win: You get the assurance of your rate now, plus a lack of regret if that rate drops.

However, there might be fees associated with this option, so you’ll need to make sure that the potential savings are worth any additional expense.

Even if there aren’t extra fees, there will be some fine print to consider. For example, if rates fall by a tiny amount, it might not be enough to actually put the float-down policy in action. Check the details to understand the threshold that rates must cross in order to exercise the float-down capability.

What happens if the rate lock expires before closing?

Real estate transactions don’t always close on time, but if the mortgage rate lock expires before the keys are yours, don’t panic. Your mortgage lender might offer to extend the rate lock, either free or for a fee.

It’s important to note that the rate lock extension fee might not be your responsibility, either. Depending on who’s to blame for the loan failing to close in the expected timeline, the lender might cover or pay a portion of the cost.

If your lender won’t extend the rate lock, the combination of rate and points you had expected might no longer be available. In that event, the loan would be based on the new prevailing rate.

“Typically, an extension costs 0.375 percent of the loan amount,” explains Greene. “If the loan is $100,000, then a 15-day extension would cost $375 — and then you can extend again. If rates have gone up, it might be cheaper to pay the extension fee upfront.”

Find out when your loan is expected to close and work backward to determine when to lock the rate. Try to give yourself some cushion: If you think you need 45 days to close your loan, find out what the interest rate and cost would be if you locked it for a 60-day period.

Can I change mortgage lenders after locking my rate?

A rate lock doesn’t lock you into the deal — if you find better terms and lower closing costs from another lender, you can opt to go with that lender after your rate lock with the first lender begins.

However, consider the implications of changing lenders at this stage. Think about all the work you’ve done with the initial lender so far, and any money you might have already paid for an appraisal, a credit check or other fees. If you switch lenders now, you’ll need to do all of that again, which might not be worth the hassle or time.

Are mortgage rate locks worth it?

Given where mortgage rates are today, getting a rate lock can pay off.

Consider if you lock in a 3.2 percent rate on a 30-year loan for $240,000. At this rate, the total interest you’d pay over the next 30 years would be just over $133,650.

Now, let’s say you don’t lock your rate and rates rise to 3.4 percent by the time you close. For the same mortgage, you’d pay more than $143,167 in interest — a difference of about $10,000.

You can use Bankrate’s mortgage calculators to get a sense of what you’d pay based on your rate lock.

How to lock in a mortgage rate

You won’t get the opportunity to lock your mortgage rate until your lender has at least had a chance to do a preliminary review of your finances.

After verifying your credit score and getting a sense how much you plan to put down and other factors, your lender will be able to give you a quote for your rate. At this point, it’s wise to ask for details on its rate-lock policy. If things look good to you, simply submit a request to lock in the rate.

Current mortgage rates

The average 30-year fixed mortgage rate is currently 3.320%, according to Bankrate’s latest survey of mortgage lenders. You can find regularly updated mortgage rates from a wide range of lenders through Bankrate. As you compare offers, be sure to look at the APR, in addition to the interest rate — this offers a more accurate picture of your total costs.

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Written by
David McMillin
Contributing writer
David McMillin writes about credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.
Edited by
Mortgage editor
Reviewed by
Professor of finance, Creighton University
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