When to Lock in Your Mortgage Interest Rate

Finding the perfect house for your family is one of the most important parts of the homebuying process. But it’s not the only thing you need to do to get ready for the transition from renter to homeowner. You also want to get the low interest rate on your home loan that will support a monthly payment that makes you comfortable. If you are worried that rates will rise between the time you apply for your mortgage and the closing date, you can lock in your mortgage interest rate early in the process. Here’s what you need to know:

What a Mortgage Rate Lock Is

When you apply for a mortgage with your lender, they’ll tell you how much they’re willing to lend you and let you know the interest rate options for your loan. Assuming you’re happy with the interest rate you’re offered, you can request that the lender lock that rate

Once you have locked, that will pause any rate changes for a set period of time. That means you’ll know exactly how much you’ll pay on the loan and won’t have to worry about changes in the market influencing the interest you’re charged.

 How Long the Rate Lock Will Last

Unfortunately, rate locks won’t last forever. Your lender will determine how long they’re willing to lock the rate. This can be anywhere from as few as 30 days to as many as 120 or longer with new construction. Depending on the market and your situation, you may be able to extend the rate lock, but extensions aren’t guaranteed and may include a fee. Your lender can explain any extension options before you lock in your rate.

What Happens When It Expires

An expiring rate lock doesn’t mean that your approval for your mortgage will expire too, but it could. An expired rate means that the interest rate you’ll pay on the loan will be subject to current market fees. This could result in a higher monthly payment, which ultimately in some cases could disqualify your loan approval.

 The Pros and Cons of Locking Your Mortgage Rate Early

A lot can happen from the time that you apply for a mortgage to the date you close on your house. Interest rates can fluctuate wildly over the course of a month or two. If you don’t lock your rate and rates increase, you risk having to pay a much higher interest rate on your loan, for the life of your loan. By locking your rate early, you’ll avoid that problem.

While the benefits of locking your mortgage rate early often far outweigh the potential downsides, you need to understand both if you want to make an informed decision. Just as rates can go up over time, they can also go down. If you lock in your rate and interest rates drop, you may not be able to take advantage of that new lower rate by the time you close.

If you’re not sure which option is best for your situation, talk to your mortgage loan officer. They’ll be able to look at the market and your financial situation to help you determine if a rate lock is right for you. That said, locking your rate at a payment you are comfortable with is usually the best course of action.

 Not All Rate Locks Are the Same

Most rate locks simply lock in the rate you’re quoted. But others include something called a “float-down” feature. Float-down features allow you to renegotiate your rate lock to a lower rate if the average interest rates for new mortgages are lower than your locked-in rate. It’s important to understand that a float-down option does not automatically lower your rate if interest rates fall. You must notify your lender to request that your rate be floated down and then get their approval which could be accompanied by a fee.

 How Much Will a Mortgage Rate Lock Cost?

Usually, rate locks are free in the sense that you won’t have to pay a fee upfront to lock in your interest rate. However, some lenders may charge higher closing costs for the rate lock. It all depends on the lender, the terms of the loan you agree to, and your financial situation. Your mortgage loan originator will explain everything to you and may be able to help you find additional ways to lower any loan costs. Sometimes you will have the option to take a lower interest rate and pay an additional fee at closing for it. Other times you may choose to take a higher rate and receive a lender credit back at closing to help pay for other fees.

 How to Decide if a Rate Lock Now Is a Good Idea

When to lock your mortgage rate is completely optional. It’s up to you to decide if locking the rate early in the application process is in your best interest or if you’d be better off letting the market dictate changes. Ask yourself these questions before you make a decision:

• Would locking your rate make you comfortable with your monthly payments?
• How long do you think it will be before you close on the house?
• Do I need extra help with closing costs or could I take on more closing costs for a lower rate?

If you are happy with your projected monthly payment and you decide that locking in your mortgage rate now is a good idea, mention it to your mortgage loan officer as soon as you can. The sooner they know that you’re interested, the sooner they’ll be able to help you put the process in motion.

 

The most important thing to remember is that your mortgage officer is there to help you throughout the application and closing. If you have any concerns about your mortgage, your rate lock, or the application process, don’t hesitate to ask. Your mortgage loan officer will happily take the time to answer those questions in detail. They want you to make an informed decision that aligns with your budget and your homeownership goals.

 

At the end of the day, an interest rate lock is about protecting your homebuying power with a monthly payment you are comfortable with and can afford.