A “mortgage rate lock” is essential to ensure you actually receive the interest rate you are quoted by a bank or mortgage broker.
When you purchase real estate or refinance an existing mortgage, you’ll need to lock in a mortgage interest rate at some point during the loan process. You can do this early on or later in the process, depending on your preference.
While comparing lenders, you’ll you be presented with a mortgage rate quote, but it will mean very little until it’s actually secured, or “locked” by a bank or lender.
It’s kind of like a car dealer telling you a price over the phone, then you show up at the dealership and the price is a lot different for whatever reason. Until you have it in writing, it doesn’t carry much weight.
What Is a Mortgage Rate Lock?
When you lock in a mortgage rate, you are guaranteed that interest rate, assuming your loan actually qualifies under said lender or bank’s guidelines. And as long as you close by the lock expiration date.
By locking your home loan, you secure a specific interest rate for a given loan program based on the day it is locked.
For example, you may be told that the 30-year fixed is being offered at 3.5% today for your desired loan amount and loan-to-value ratio (LTV).
Once you formally apply, you’ll be given the opportunity to lock in that quoted rate so it doesn’t change if market conditions worsen.
Just know that mortgage rates change daily, so a quote from yesterday might mean nothing today.
So the lock actually cements your interest rate and the costs associated, both of which can fluctuate until you’ve formally locked.
It will also detail the loan amount, loan term, and the mortgage index and margin if it’s an adjustable-rate mortgage (ARM).
If any of these things change before you close (e.g. you need a larger loan amount), your lock is also subject to change. But it will still be based on the pricing from the day you originally locked.
Most lenders don’t charge a rate lock fee, but they’ll often ask for a deposit at the time you lock for the home appraisal as an indirect means of making sure you’re committed to the loan application.
For example, if you lock with them but then decide to use a different lender, it could cost them, so they want some assurances.
Choosing a Mortgage Rate Lock Period
- 15 days
- 30 days (most common)
- 45 days
- 60 days
- 90 days
When you lock your loan, you must also choose a rate lock period, which is how long the rate is actually good for.
Once this period ends, your lock will expire and you’ll lose that price unless you pay an extension fee.
In other words, you need to fund your loan before the lock expires.
Locks can range from 7 days to 90 days or even longer. In fact, loanDepot recently introduced a 150-day rate lock.
But the most common lock period is anywhere from 15-45 calendar days, which is the average time it takes for a home loan to close.
For example, if you agree to a 15-day lock on December 6th, your lock will expire on December 21st. If you do a 30-day lock, it will expire on January 5th.
The longer the lock period, the worse the pricing will be, all else being equal, because it’s risky for a lender to offer a guaranteed rate over time.
While the mortgage rate may not be different based on the lock period, the closing costs will most likely vary. So you might find yourself paying more in closing costs for a 45-day lock vs. a 15-day lock.
It’s important to pick the appropriate length of time to ensure you get the loan closed (funded) before the lock expires, without subjecting yourself to additional fees.
Either way, you will always have the opportunity to extend your rate lock at a relatively small cost if the process gets delayed, which it often will!
When to Lock Your Mortgage
- There is no universal right or wrong answer here
- It’s always going to be a moving target (like timing the stock market)
- Base your decision on the current interest rate environment (trending up or down)
- And the amount of time you have until your closing date
Some borrowers may choose to lock in a mortgage rate at the initial time of the loan application, before the loan is even submitted to the underwriting department.
This is known as a “pre-lock,” and ensures the interest rate is set before the loan is even underwritten.
It can be helpful to pre-lock your mortgage rate if the debt-to-income ratio is close to the maximum, so if there are any interest rate fluctuations, the DTI won’t be exceeded.
It could also be a smart move if mortgage rates are rock-bottom and there is little expectation for rates to improve further.
However, this option is typically only available on a refinance or for a purchase loan that has has a fully executed purchase contract.
If you’re simply shopping for a home, a pre-lock probably won’t be an option.
Others may float their mortgage rate and lock their mortgage at the last minute, effectively gambling on the hopes of mortgage rates improving later in the loan process.
If you feel mortgage rates have more room to fall, this could be the way to go. But as mentioned, it’s a gamble and there’s no guarantee.
You can typically lock your loan Monday through Friday during normal business hours, which tend to mirror market hours.
Some lenders may allow a lock on a weekend, but the pricing will likely factor in the uncertainty of the week ahead.
Can Mortgage Rates Change Once Locked?
- Once you’re locked, your interest rate won’t change
- So even if rates rise after the fact your low rate will still be honored
- However, if rates fall after you lock, you won’t get to take advantage of them
- Unless the lender provides a float-down option for a small fee
Nope. Once you lock in your rate, your rate cannot change as long as your loan funds before the lock’s expiration date.
For example, if you lock in a rate of 3.75% on a 30-year fixed mortgage and rates shoot up to 4.5% over the next week, you can give yourself a pat on the back.
Those who didn’t lock will have to contend with the higher rates, but you can rest assured that your rate won’t change.
However, it’s also possible for mortgage rates to drop after you locked. In this case, you might be perturbed, but again, your rate won’t change, or improve in this case, either.
In that sense, you’re taking a risk by locking on a certain day. For the record, there is no special day to lock, or a better day to lock than others.
It’s like asking someone what the best day to buy stocks is. Plenty of opinions I’m sure, but no one really knows.
“Should I lock my mortgage today?”
If you’re asking this very cliché question, consider the following:
- Are you happy with the rate and fees being charged today?
- How much do you stand to gain if rates improve?
- How much time do you have before you must lock in order to comply with all lender timelines?
- Could a rate spike jeopardize your loan entirely?
- What’s the current rate trend? Is it your friend?
- Is any big economic or geopolitical news on the horizon?
- Do you like to take risks?
As a rule of thumb, the longer you have until the close of escrow, the more chances you have of mortgage rates improving.
Conversely, if you only have a couple weeks before you close, you’re taking more of a risk by floating your rate.
Put simply, mortgage rates tend to rise and fall all the time, and if you have a longer period of time to float, there’s a better chance you’ll see a favorable day or two to lock in a great rate.
This is why it may not make sense to lock well in advance.
For example, if you have a 45- or 60-day escrow, you’ve got a lot of time to watch rates and see how things go.
It might be prudent to just take a wait and see approach, especially if mortgage rates jumped higher in recent days or weeks.
The ebb and flow might benefit you if a long period of rising rates suddenly reverses course.
It’s kind of like buying airline tickets. Imagine you’ve got three months before you trip. You have time to sit and watch fares to see if they come down. And even if they go up, they might come back down again.
If your flight is in two weeks, you don’t have that luxury, and could wind up with an even higher fare if you push it to the last minute.
Ultimately, it’s your choice and will be dictated on your risk appetite and/or if you’re satisfied with where rates are on a given day.
Think it through and try not to be too impulsive. No one know with certainty if rates will go up or down tomorrow, next week, or next month.
What If My Rate Lock Expires Before Closing?
- You generally have several options here
- Including a lender courtesy to extend the lock a few days for free
- Or you can pay a lock extension fee if you need even more time
- This will increase your closing costs, but ensures your original rate is honored
As mentioned, mortgage locks don’t last forever, they come with a set time period.
Assuming you lock your rate early on, there’s a chance the rate lock period could be exhausted, at which point the lock could expire.
If the rate expires before loan closing, you’ll need to get it re-locked. This could entail worst-case pricing (assuming mortgage rates have risen) AND a re-lock fee.
For example, if rates went down, you’d be stuck with your old, higher rate and a re-lock fee to boot.
And if rates went up, you’d be subject to a higher rate, which is even worse. In other words, don’t let your lock expire.
Ask for a Rate Lock Extension
- Don’t stress if time is running out on your rate lock
- Just be sure to discuss an extension before the lock actually expires
- This will keep your original pricing intact for an extended period of time
- If you’re lucky the lender will extend it a few days for free if that’s all you need
Typically the lender will keep an eye on the rate lock period and issue a “rate lock extension” before the lock actually expires. Doing so will ensure you get to keep the rate you originally signed up for.
However, rate lock extensions don’t come for free either. If it wasn’t the lender’s fault, the cost of the rate lock extension could run you several hundred dollars or more, depending on the associated loan amount.
It is calculated as a percentage of the loan amount. So you might be charged .125% for a 7-day lock extension, or .25% for a 15-day extension. These fees will vary from lender to lender and could be more or less.
The higher your loan amount, the higher the cost. On a $200,000 loan amount, you’d be looking at a cost of $250 or $500 to extend the lock period, respectively.
While that fee sounds like a raw deal, holding onto a rate that is an .125% or more lower could save you a lot of money over the term of the loan.
In other words, it’s better to get the extension than let the lock expire for fear the rate could rise.
If the delay happens to be the lender’s fault, they will generally offer a free rate lock extension for seven days out of good faith.
This should be enough to get the loan closed without any cost to you. Even if it is your fault, you might be able to get a few free days to ensure the loan closes before the lock expires.
In any case, you can try to negotiate a lock extension in your favor, and ask them to extend it for free if you feel it was out of your hands. They may work with you to retain your business and avoid you going elsewhere.
Rate Lock Break Option
- You might be offered a rate lock break
- Assuming mortgage rates fall substantially from the time you locked
- This could give you the opportunity to snag an even lower rate
- But there is usually a cost involved so make sure you plan to keep the loan for a while
Some lenders may give you the option to “break your lock” if rates substantially improve after you lock.
However, this option will come at a cost. For example, say you lock in a rate of 4.625% and rates all of a sudden fall to 4%.
The lender may let you execute a rate lock break whereby you get a rate of 4.125% (an eighth over the prevailing market rate) at an additional cost in the way of discount points.
In other words, you’ll wind up with a lower rate than what you originally locked, but you won’t get quite the lowest rate currently available, nor will you get it for free.
You’ll pay some fraction of a point to get it, perhaps a quarter or half a point.
Then once you break even on that initial upfront cost, you can save money via lower monthly mortgage payments year in and year out.
Get the Mortgage Lock in Writing!
- Always get your mortgage lock confirmation in writing!
- Ask for it when making your verbal rate lock request
- And keep the paperwork in a safe place in case anything comes up along the way
- It’ll be your story against theirs if you were simply told your rate was locked
It’s important to stay on top of your mortgage rate lock, and also to make sure you have the rate and terms in writing.
Never just assume a mortgage broker or bank has locked your interest rate.
As you can see from the Loan Terms Agreement form pictured above, the interest rate for this particular loan has been locked.
It details the interest rate, lender fees, and the lock expiration date. Most importantly, the “Locked Interest Rate” box is checked.
If the loan isn’t locked, the “Float Rate” box will be checked, meaning it’s subject to change until locked.
You should receive this form or something similar with your original disclosure package. Pay close attention to it.
They may say your rate is this or that, or that it’s locked, but in actuality they may be floating your rate in the hopes of getting a better commission.
Or perhaps you’ve been misquoted, and they’re praying the mortgage rate will come down to what they originally quoted you.
I’ve seen that happen a million times. They’ll go into panic mode if they failed to lock a rate initially, often after quoting their borrower a guaranteed low rate.
Sometimes they will settle for a lower rate with less commission to them, but often they’ll simply tell the borrower the rate is higher for some reason.
And the borrower will just have to accept it because they’ve spent so much time working on the loan that they’ll just want to get it done.
Watch Out for Changes to Your Mortgage Rate
- Always beware of a possible bait-and-switch
- Where you’re quoted a low mortgage rate initially
- Then told something entirely different later on
- Also pay attention to the closing costs and terms to ensure everything is correct
Some unscrupulous loan officers and brokers may even change the original terms they quoted you to produce a lower rate.
Such as raising the margin, adding a prepayment penalty, or changing indexes, caps, or even loan programs.
They may also tell you that mortgage rates increased since you were first quoted. This might be true, but it could also be baloney.
Keep an eye on rates yourself to see what’s going on in the market to avoid getting taken for a ride.
In summary, make sure you know exactly what you’re getting when it comes to the interest rate and terms associated with your mortgage rate lock.
Any mistakes here will lead to higher monthly mortgage payments for years to come, or a major headache if you fail to jump on a good rate early on.
Sure, you can hold out for better, but if you’re happy with a certain interest rate, might as well not take chances.
And again, always get your lock confirmation in writing from the bank or broker before you proceed with the deal! This cannot be stressed enough!