home interest with lock on percentage sign

Mortgage Rate Lock

If there’s one question that spurs more anxiety in the process of applying for a mortgage, it’s the question, “when should I lock my mortgage rate?” 

While I can’t give you specific advice as to whether today is the best time for you to lock your mortgage rate, I can give you some pointers that will help you make that decision.

What Is A Mortgage Rate Lock?

Mortgage rates frequently change, sometimes daily. This is especially true in times of interest rate fluctuation, like when the Federal Reserve changes interest rates.

Because of that uncertainty, mortgage lenders have established a method to add surety to the mortgage process, called a mortgage rate lock.

Locking your mortgage rate enables you to fix your mortgage rate at the current rate. That way, if interest rates increase between the time you close on your property, you have the rate you locked in earlier.

Of course, the opposite is also true. If you lock in your rate today and interest rates drop tomorrow, your rate will remain at that higher rate.

This can have substantial effects on your pocketbook. During times of interest rate fluctuation, like when the Fed is increasing/decreasing interest rates, locking your mortgage rate can save or cost you $100 or more in your mortgage payment.

Every single month…

For 30 years.

Hence the anxiety…

So how do you choose whether to lock in today or wait a few days hoping for a better rate?

When Should You Lock In Your Mortgage Rate?

First off, it’s important to realize that every mortgage lender will lock in your mortgage rate at some point prior to closing because that rate is needed for all the contracts and loan approvals that need to be finalized before closing. Most lenders will require you to lock in your rate at least 5 days before closing.

Most buyers choose to lock in their rate when they’ve made an offer on a home and have made their application for a mortgage. Some even lock it in earlier, when they seek pre-approval on a loan, so they know what price range they could potentially qualify for.

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Reasons To Lock In Your Rate Earlier

There are several reasons why you should choose to lock in your mortgage rate sooner rather than later.

Rising Interest Rate Environment

There are times when the news is full of conversation about how interest rates are rising. In fact, there are times, like in mid 2022, when the Federal Reserve has clearly communicated that they plan to increase interest rates at their next meeting and are very likely to do so again, probably repeatedly, over the next several months.

In those situations, it’s probably a good idea to lock your interest rate as soon as possible to prevent it from rising even further.

When You Want The Comfort Of Not Needing To Worry About Your Interest Rate

As mentioned above, there’s anxiety involved in this process, not knowing whether rates are going to rise or fall in the next few days.

Sometimes there’s value in just calling it done and going on. 

Reasons To Wait To Lock In Your Interest Rate

Falling Interest Rate Environment

Yes, interest rates not only rise, but they also fall. When people on the news are talking about the need to reduce interest rates to stimulate the economy, that’s usually a good time to wait a bit to see if you can save.

Hot Real Estate Market 

Let’s say you’re in a really hot real estate market, where offers are being accepted within hours of the property becoming available. In those situations, unless you choose to bid high to win, you might go for weeks or even months before you can get an offer accepted. If that’s the case, you may want to hold off on locking in an interest rate (unless rates are rising) until you have an accepted offer on the table.

How Long Do Mortgage Interest Rate Locks Last

When you still don’t have an accepted offer, and you want to lock a rate, you’re very interested in how long you can lock a mortgage rate.

Normally, the answer is 30 to 60 days. Sometimes they can go as long as 90, but those will be hard to come by in an increasing interest rate environment.

Can You Extend A Mortgage Rate Lock?

Most lenders won’t let you do so if interest rates have increased in the meantime. 

Does It Cost Extra To Lock A Mortgage Rate?

Many lenders will lock your rate at no additional cost (but be sure to ask, don’t assume.) Some will charge you up to 1% of the loan amount, though it’s typically between 0.25% and 0.50% of the total loan amount and 0.06% to 0.375% for a lock extension. That can add up, 1% of a $250,000 loan will cost you $2,500. You should discuss this before committing to a lender.

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Interest Rate Locks For New Construction

New construction typically takes 8+ months to complete, during which time interest rates could vary considerably. And, you don’t usually need all that money right up front.

To respond to this, the mortgage industry created the construction loan – a process that approves you to receive x amount in draws across a period of tome.

Then, when the home is finished, and occupancy is approved, a different loan, a mortgage on the house, is approved. 

That means that the interest rate for the long-term mortgage is locked close to the time of final occupancy, not months before as you build the house.

Can You Cancel A Mortgage Lock If Rates Decline?

Technically, you always have the right to walk away from a loan before closing. However, if you do, you will lose a portion of your closing costs. Usually, those add up to thousands of dollars, so in many cases, it is not worth it to lose that amount in exchange for a reduction in monthly payments. Plus you may not have time to get a new loan approved before your closing date. However, the option is always there in case they drop precipitously.

Some lenders offer a “float-down” option giving you a one-time chance to relock your mortgage at a lower interest rate. This is more common, though, in construction loans.

Can My Loan Officer Give Me Good Advice On Whether Today’s The Day To Lock My Rate?

Great question. Unfortunately, the answer’s usually “no.” They may know more about the trends than you do, given that they’re paying attention to the rates daily. But most of them have no idea whether rates will be lower or higher tomorrow than they are right now. You can ask, but they probably can’t help you.

Is Locking My Mortgage Rate A Good Idea?

For most people, it is, if it won’t cost you anything and you’re not in a situation where interest rates are falling. Locking your rate gives you comfort and predictability and removes a key variable in the middle of a stressful time as you buy a home.

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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