When to lock mortgage rate: Today or wait?

A rate lock freezes your mortgage rate for a specific time. But when is the best time to lock your rate so you can close on a home confident you can afford your final interest rate? Learn more about how a rate lock works, and how to decide on the right time to lock your rate.

Key takeaways:

• A rate lock freezes the mortgage interest rate you’re paying on your loan for a specific time.
• A lock can save you money on interest if rates go up before you close on a home.
• If market rates are stable or falling, or you’re not yet ready to make an offer, it can be better to wait to lock your rate.

At a glance: Should I lock now or wait?

When to get a mortgage rate lock depends on your closing timeline, market volatility, and risk tolerance.

Locking your rate can help you when your closing date is within 30 to 60 days, you are satisfied with your quoted monthly payment, or today's interest rates are trending upward.

You may want to wait if you are still casually house hunting, have several months before closing, or rates are trending downward.

Use this quick decision matrix to evaluate your situation:

How does a mortgage rate lock work?

When you apply for a mortgage, your lender will quote you a rate on your Loan Estimate, but that rate may change before you close on the loan. If rates increase before closing, you’ll pay more for your loan and have a higher monthly payment.

A rate lock is an agreement from your lender to freeze the quoted mortgage rate, usually for 30 - 60 days. That’s usually enough time to close. If rates increase before you close, you’ll still pay the frozen interest rate, saving you money. If you need more time, you may be able to extend your rate lock.

Some lenders let you lock your rate for free, while others may charge a fee.

Significant changes in your credit or finances could still affect your interest rate and how the rate lock process works for you.

Example of a mortgage rate lock

Imagine you’re shopping for homes. You plan to buy a $400,000 home with a 5% down payment. Your lender preapproves you for a 30-year fixed-rate loan of $380,000 at 6.5% interest. The monthly payment for principal and interest is $2,402.

If rates increase to 6.75% by the time you close, your monthly payment will increase to $2,465, and you’d pay $22,613 more in total interest over the life of the loan.

Locking your interest rate at 6.5% when you’re preapproved would save you from paying that extra interest.

When should you lock your mortgage rate?

Each lender has its own rules, but borrowers usually can lock their rate after they get mortgage preapproval, when their loan application is officially approved, or up to a few days before closing.

Lock now

There are a few cases where locking in your rate may be a good idea.

• Mortgage rates are unpredictable or trending up. Locking in when rates are rising can save you money on interest. If rates are unpredictable, a rate lock helps you avoid uncertainty over what final rate you’ll pay.
• You like the rate offered. If you like the mortgage rate you’re offered, you could lock it and not have to worry about it changing.
• You want to be certain about your loan payment. Locking in your rate means your monthly payment won’t change. This can help if a rate increase would stretch your budget beyond what you can afford for a monthly payment.
• You’re close to closing. You can lock your rate shortly before closing on a house to avoid the need to extend your rate lock or a sudden shift in rates.

Wait to lock

There are a few situations where waiting to lock your rate might be the better decision.

• Rates are stable or falling. If rates could go down, locking in a high rate could mean paying more than is necessary.
• You’re early in the process of buying a home. Rates can change significantly in just a few months, so you may not want to lock your rate if you’re early in the process. This is especially true if your lender limits how long you can renew your rate locks for or if they charge a fee for locking in the rate.

How long can a rate lock last?

Rate locks typically span 30 to 60 days, which aligns with average residential closing timelines. However, your lender may offer shorter or longer rate locks depending on the loan you’re applying for or the type of home you’re buying.

If delays occur and your lock expires before closing, you may have to pay a lock extension fee – often 0.25% to 1% of the total loan amount.

Why do mortgage rates change so often?

Mortgage rates change because the economy and interest rate market are constantly changing. Many factors influence rates, including:

• Demand for housing and mortgages. More demand can lead to higher rates as lenders don’t need to compete for borrowers.
• Federal Reserve decisions. The Fed sets benchmark interest rates that indirectly affect mortgage interest rates.
• Inflation or unemployment levels. When prices rise quickly, interest rates may follow. The Fed also may try to rein in interest rates by increasing the federal funds rate, which can lead to higher mortgage interest rates. The Fed also may reduce its benchmark rates to try to boost the economy and reduce unemployment.
• Treasury yields. As bond rates rise, so do mortgage rates as investors demand greater returns from mortgages, which are not as safe as treasuries.
• Government policies. Government home loan programs and other policies aimed at the housing market also affect rates.

Your financial profile also affects the rate your lender will offer. Borrowers with good credit and stable finances tend to get better rates than people with lower credit scores and smaller down payments.

How to lock in your mortgage rate

To execute a rate lock, notify your loan officer once your purchase offer is accepted or when you decide to finalize pricing during a refinance.

1. Review your Loan Estimate: Verify the interest rate, monthly payment, and origination fees outlined on Page 1 of your Loan Estimate.
2. Confirm lock expiration date: Ensure the lock duration covers your agreed-upon closing date with a cushion for unexpected delays.
3. Request written lock confirmation: Obtain a written rate lock agreement specifying the exact expiration date, locked rate, and any float-down provisions.

What if rates fall after you lock?

When you lock in your mortgage rate, both you and the lender are committing to the rate on offer. If rates rise, the lender won’t increase your rate, but if rates fall, you usually have to stick to the higher rate you locked in.

If rates have dropped significantly and your lender won’t let you out of your rate lock, you could reapply for the loan, which may extend your closing schedule.

How a float-down option works

Some lenders may be willing to float down your rate to a lower market rate, but that usually involves paying a fee. A float-down option is an addendum to your rate lock that reduces your locked interest rate if market rates drop significantly before closing. Market rates typically must fall by 0.25% or more for the float-down option to apply.

What happens if your rate lock expires?

If your rate lock expires prior to clear-to-close approval, your loan defaults to market interest rates. If market rates have risen, your monthly payment will increase, which could affect your qualifying debt-to-income ratio (DTI). To prevent expiration, you can request a rate-lock extension from your lender as soon as a potential closing delay is identified.

FAQ

Here are answers to common questions about when to lock your mortgage rate.

Is it better to lock a rate on a Friday or a Monday?

Mortgage rates are updated throughout the trading week. Market volatility often spikes around major economic announcements, such as jobs reports released on Fridays. Locking your rate when you receive a comfortable, budget-friendly quote is safer than trying to time specific days of the week.

Can a lender break a rate lock?

Lenders must honor a valid rate lock unless there is a material change to your application. Circumstances that can trigger a rate redisclosure include property appraisal shortfalls, changes to your loan amount, credit score drops, or unverified income documentation.

Does it cost money to lock in a mortgage rate?

Many lenders offer standard 30- to 60-day rate locks at no direct upfront cost, building the fee into their standard loan pricing. Extended rate locks beyond 90 days or specialized float-down features typically require an up-front or closing fee.

The bottom line: You have options for your mortgage rate

Locking in your mortgage rate offers some level of certainty as you go through the home buying and closing process. If you get a loan offer that you really like or worry that rates could rise, locking in your rate could help you get a good deal. Keeping a close eye on the mortgage rate market is important for properly timing your rate lock, but there are other ways to reduce your loan interest rate, like boosting your credit score or lowering your debt-to-income ratio.

If you’re ready to buy a home, explore your borrowing options today with Rocket Mortgage.