Should I lock a mortgage rate today? Rate lock strategies

Erik J. Martin
The Mortgage Reports contributor

Should I lock a mortgage rate today?

You should lock a mortgage rate when three conditions are met:

  1. If buying a house, you have a signed home purchase agreement
  2. You’re approved for the mortgage loan you need
  3. You’ve compared lenders to find the lowest rate available

Most borrowers shouldn’t try to time the market when locking an interest rate. Even experts often don’t know whether rates will move up or down from one day to the next.

The most important thing is to compare loan options and find the lowest rate for you. Then, it’s time to lock.

Verify your rate lock eligibility (Oct 15th, 2021)

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What is a mortgage rate lock?

When you apply and get approved for a mortgage, the lender will quote a certain interest rate for your home loan. If you like the deal you’re offered, you can ‘lock in’ that interest rate for the final mortgage.

A rate lock guarantees that your interest rate won’t change between the time you make an offer and the time of your closing. This protects you from rate increases and allows you to lock in a low rate as soon as you’re approved.

For a rate lock to be valid, though, you have to close within the specified amount of time (often 15-60 days). And you can’t make any changes to your mortgage application before closing.

Most lenders provide a free rate lock up to a certain deadline.

If it seems likely delays will push your closing date past the deadline, you can often extend often your rate lock. But it will likely cost you.  

When you lock your rate, ensure the rate lock agreement is long enough to cover the time until your loan closes to avoid any extra fees.

When can I lock a mortgage rate?

“Borrowers are allowed to lock their interest rate any time after they have completed a mortgage loan application,” says Matt Hackett, operations manager for Equity Now.

“As soon as the lender has your complete application and credit report, they often have enough information to be able to lock in at any later point in the process, up until about 10 days prior to closing,” says Melissa Cohn, executive mortgage banker for William Raveis Mortgage.

Borrowers are allowed to lock their interest rate any time after they have completed a mortgage loan application.

“However,” cautions Hackett, “every lender has its own internal guidelines governing the rate lock process.”

You should consult closely with your lender about time frames and the expected closing date to make sure your rate lock doesn’t expire before the loan closes.

Verify your rate lock eligibility (Oct 15th, 2021)

When should I lock a mortgage rate?

The timing to lock a rate looks different depending on whether you’re buying a house or refinancing, per Mike Jones, National Sales Manager of Union Home Mortgage.

  • Home buyers should lock a mortgage rate when they have identified a property they’re ready to purchase and are approved for a mortgage loan
  • Homeowners looking to refinance should lock a mortgage rate when they’ve found a new loan with the best terms, conditions, and rate for their financial goals

Mortgage rate forecasts might also influence your decision.

Good candidates for a rate lock are those who think rates will go up — or don’t want to take the risk that rates will go up — by the time they close, says Hackett.

But the most important thing is finding your lowest rate before you lock.

Often, shopping among lenders could save you as much as timing your lock for a day when rates are down.

Risks of waiting to lock

For home buyers, it’s important to lock your loan as soon as the purchase contract has been accepted by the home seller.

“Borrowers should lock their loan when the contract to acquire the property has been consummated so that they can manage the cost of the rate lock while ensuring the lock period is sufficient to complete the transaction,” Jones recommends.

He cautions that “Failure to lock in a rate during this time could impede your ability to obtain the loan.”

That’s because, if rates rise, it could push up a buyer’s monthly mortgage payment. If the monthly payment rises enough, they may no longer qualify for the loan.   

If you wait to lock a rate, and rates rise substantially, it could put your mortgage approval at risk.

So locking your rate not only secures you a good deal, it also secures your mortgage approval and your ability to buy a home.

Just be sure your rate lock period is long enough to get you through to closing day.

“While most borrowers would think to lock in their rate early for fear of rising rates, it may not be the ideal strategy,” explains Rocky Foroutan, CEO of LenderHomePage.

“Most lenders provide free 30- to 45-day lock-in periods. But if the underwriting process takes longer than expected, or your closing date gets pushed back, your free lock-in period will likely expire and you’ll need an extension.”

“If you opt for an extension,” Foroutan continues, “that’s when the lender may either charge you a fee or slightly raise your interest rate.”

How long does a mortgage rate lock last?

Mortgage lenders commonly offer free rate locks for 30, 45, or 60 days.

“Typically, a mortgage rate lock will last at least 30 days. This allows time for the sale of the house to go through,” notes Jeff Zhou, CEO of Fig Loans.

But there are options to extend the lock for longer periods — up to 12 months for certain loan types — at an additional cost.

“Often, if mortgage interest rates are the same as your locked rate at the expiration of your lock, you can extend it for free. But some lenders charge a fee to extend no matter what the interest rate is when the lock expires,” says Cohn.

You might be charged for a rate lock extension in the form of a separate fee or a slightly higher interest rate.

The further out you push the rate lock deadline, the more expensive it can be.

“This is because the lender has to hedge this interest rate exposure, and hedging with an extended rate lock is generally riskier and costlier to the lender,” Hackett points out.

In other words, charging more upfront via a loan lock fee reduces the risk that your lender will earn less on your loan if rates go higher by the time you close.

Find your lowest mortgage rate. Start here (Oct 15th, 2021)

What if rates fall after I lock my mortgage rate?

It’s not uncommon for rates to drop after you lock. You do have a few options in this case.

First, you can keep your locked rate. It may not be worth trying to renegotiate your lock over a small rate reduction.

However, if rates drop dramatically during that period, you might be able to take advantage of new, lower rates with one of the following strategies.

  • Using a “float down”
  • Locking with a different lender

Many lenders allow you to “float down,” which lowers your rate to match the market rate if interest rates decrease during your rate lock period.

Usually, the lender charges a fee or higher interest rate if you opt for a float down.

“Most lenders offer a float down provision because ultimately they want to keep you as a customer more than they want to lock you in at a higher interest rate,” notes Zhou.

However, some lenders don’t provide a float-down option.

“If this is true, you can always abandon that lender’s loan application and rate lock and reapply with a different lender offering a lower interest rate,” Cohn suggests.

Remember, you’re not committed to a lender until the loan closes — even if you’ve locked a rate. You can always walk away before closing day and find a lender offering a better deal. The downside is, you’ll have to re-apply and go through underwriting all over again, thus extending your time to close.

Alternatively, you could stick with the higher rate you locked in and proceed to closing as planned.

“Or, you could try negotiating with your lender for a lower rate, which they may or may not offer,” says Hackett.

What are today’s mortgage rates?

Current mortgage rates are at historic lows. That means better deals for first-time home buyers and current homeowners alike.

You may be able to gauge how good of a deal you’re getting by comparing your mortgage rate with the overall market. Foroutan recommends that you carefully watch rates and compare your locked-in or pre-locked-in rate to the national average.

However, remember that advertised rates and national averages are only a benchmark.

Your own rate could look very different from today’s mortgage rates depending on factors like your credit score, down payment, and loan type.

To find your best rate, you need to “shop around for different rates from different lenders,” says Foroutan.

You’ll only know you’re getting the best deal if you have compared personalized rate offers from more than one mortgage company. Once you’re confident you’ve found the best deal, it’s a good time to lock your mortgage rate.

Verify your new rate (Oct 15th, 2021)