Should You Lock in Your Mortgage Rate Right Now?

By Alvaro Moreira
7 min read

Should You Lock in Your Mortgage Rate Right Now?

A rate lock is one of the best ways to protect yourself from sudden interest rate hikes.

Should You Lock Your Mortgage Rate In?

Getting a mortgage rate lock is one of the single best ways to effectively minimize the risk of having to deal with severe rate fluctuations. You essentially lock yourself into a specific rate. This is ideal when the rates are low, but they are expected to increase. Getting a lock can help to protect you from having to worry about hikes in the future before closing. Here are some of the top things that every prospective homebuyer needs to know about how these mortgage rate locks work when you should do it, how long it takes, and more.

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What Exactly is a Rate Lock? 

When you get a mortgage rate lock, you are effectively protecting yourself from having to pay an increased rate from rising rates before you close. It’s essentially a promise from a lender that they will deliver a specific interest rate that was agreed upon by both parties. This remains true so long as your loan application remains the same and you close on time. For instance, if a lender offers you a rate of 4.99 for zero points for 30 days, you will only be expected to pay that rate so long as you close within those 30 days. 

mortgage rate

How Long Can You Lock in a Rate?

The majority of lenders will give you a grace period ranging from 15 to 60 days. Some will even go as far as 90 days. Some will offer much more, but those rate locks are typically going to cost a lot more in the long run. They will typically require much higher interest rates on them.

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When Should You Lock in Your Rates?

You will find the majority of lenders have different rules when it comes to eligibility for rate locks. According to Chase bank, some will allow you to get a rate lock once you pick up your mortgage 5 days before closing. The majority of lenders are going to require you to have a complete sales contract in place to effectively lock in a rate.

Typically, once you go under contract on a home that you are considering buying, that’s when you qualify for locking in your interest rate. This means that you can lock it on that exact day so you know how much you can expect to pay through the closing date.

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Any prospective buyer that locks in their rate early is effectively betting on the fact that interest rates will rise soon. However, it’s important to understand the risks. If the rate lock expires before you close on the property, you won’t be able to keep it. Because of this, you need to speak with your intended lender before it expires. They should be able to tell you whether or not they will allow you to extend the rate lock.

How to Do it? 

If you are looking to lock in your rate, you are going to want to know how to go about it. The lender you choose is likely going to offer you a rate lock once you’ve been preapproved for your mortgage. You could always go up to them and ask them. In general, a lender can effectively lock in your rate within 24 hours after you get your loan moved to the underwriting process. 

Keep in mind that your loan estimate is going to state whether or not your rate is locked. However, what it won’t include is the total cost of the lock. Likewise, it’s not going to say how much it costs to extend it or whether or not it can even be extended. It’s going to withhold a lot of essential and pertinent details that you will want to have access to. This is according to the Consumer Financial Protection Bureau. Because of this, you want to ask for this information in writing.

Is it Free?

A lot of lenders will charge those who are borrowing a fee for getting a rate lock. Whereas, some of them will offer it for free. A lot of them will simply put the cost of the rate lock into the actual loan rather than separate the fee. 

You will end up having to pay more for a longer rate lock than a shorter one. For instance, a lender could offer you 3.99% for 15 days with no points or the same rate locked in for 45 days while charging you a point cost of $750.

You don’t write a check or payout that cost. Instead, you pay with the rate. You will likely need to pay a fee if you are forced to get an extension on the lock. These fees can vary considerably. They could end up costing as much as 1 percent of the total mortgage.

What is a Mortgage Rate Float-Down Option?

This is an option that helps to protect both your interest rate and assures you that you can lower it if the market drops during the lock period. 

The problem is that this float-down option isn’t always a good idea. Some policies end up making it extremely difficult to successfully get the rate lowered. You want to always read the fine print. Understand the terms and conditions to ensure that you know what you are getting into. You need to know exactly how much the rates need to fall to lock in the newly adjusted rate.

Even if you end up hitting that threshold, it’s not a guarantee that you are going to get the rock-bottom rates you wanted. For instance, if you originally locked them in at 4.25% and the rates dropped to a solid 4%, you are likely going to be offered a new rate of 4.125% and your points cost will be adjusted along with it. 

Can You Walk Away From it? 

You can always swap out lenders if you want to even if you have a rate lock. The problem is, you are going to waste time and money by doing this. The new rate that you get from another lender isn’t likely to be low enough to justify the cost, time, and hassle. It could also cause considerable delays to your closing process which can jeopardize the entire sale.

However, it could end up saving you a boatload of money over the life of your mortgage. Because of this, you need to factor in the potential savings and weigh them in your decision. The process may not be as inconvenient as you may assume. 

When it comes to a broker, they can always move your loan. It’s not a problem. However, the market rates don’t generally improve within 30 days to the point where it could be worth doing so. On the other side of the coin, a lender can walk away from the rate lock too. However, they do need to have a solid reason for doing it. They can void your rate lock if there is a big change to your financial situation or something that impacts your loan application. It could be a change to your credit score, the loan, or even your income.

Some Pros and Cons Of a Mortgage Rate Lock

Pros:

1. Protection

The main benefit of getting a rate lock has to do with the protection it delivers. You can protect yourself from a potential interest rate increase while you are waiting to close.

2. Budgeting

You have a better idea of how much your monthly mortgage is going to be when you know the exact rate you’ll be paying. 

3. Float-Down Option

You may get a float-down option that will allow you to take advantage of lower rates if they decrease before you close.

Cons:

1. Rates Could Fall

You could find yourself in a situation where the rates fall after you lock in your rate. This means you’re paying more than you would have if you didn’t.

2. Fees

You may have to pay a fee to lock in a rate or to change it. 

3. Float-Down May Be a Hassle

You may have your savings negated by the fees associated with changing your rate.

Should You Get a Mortgage Rate Lock?

It’s generally a good idea to lock in your mortgage rate once you have a signed contract. This helps to protect you from rate fluctuations. You generally have options to move to a lower rate if they decrease. However, you cannot go back and lock in a lesser rate if they end up increasing substantially. That’s why Moreira Team recommends locking it in as soon as possible.

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