Mortgage Rate Locks: The Complete Guide

What’s a mortgage rate lock?

A mortgage rate lock is an agreement between a borrower and a lender that allows the borrower to keep a certain interest rate on a mortgage for a specified time period. The rate you lock is protected from increasing during this period.

Interest rates fluctuate daily. So when you lock, you’ll be able to estimate your monthly payment with close accuracy and protect yourself from changes in the market.

Locking an interest rate is a risk to a lender because if rates go up, they must still honor the one you locked.

How long can you lock in a mortgage rate?

Borrowers usually choose a lock period between 15 and 90 days (although with some lenders you can lock your rate for a longer period of time, like for new constructions). Lenders allow you to choose how long you want to lock in 15-day increments. This is called a rate lock period.

Most lenders will lock a rate for 30 days with no fee. Longer locks may incur an extended lock fee because they require your lender to use more time and resources in protecting your rate.

Your rate is ready to be locked after you get pre-approved for a mortgage and reach an agreement to purchase your new home. This allows the lender to get to work on closing your loan before the rate lock period expires.

Extending mortgage locks for new construction

When you want to lock a rate for a new construction set to be built months from now, a 15-day lock won’t give you peace of mind on your expected monthly payments. That’s why some lenders offer 180-day lock programs for new constructions.

Making the decision to go with a longer lock period is about weighing two things against each other:

Talk to your lender about what whether or not you should purchase an extended lock for a new construction. Your mortgage adviser will consult with you to provide the best advice and options to protect you throughout the process.

Two kinds of mortgage lock fees

Mortgage lock fees depend entirely on your lender. It’s a smart idea to ask your lender about each of the following potential fees before you lock.

Initial rate lock fee

Some lenders choose to tack on a separate fee for locking. Others account for the initial lock fee by integrating it into your interest rate. Be sure you know whether and how you will be charged for an initial lock.

Here’s an example breakdown of what you may expect in terms of fees for mortgage locks:

Rate lock extension fees

What if you face a hiccup with your seller or new construction and your lock expires before closing?

The good news: When you extend your lock, you typically get to keep the old rate you locked with.

The bad news: You’ll be hit with a rate lock extension fee which usually costs a few hundred dollars, depending on how long you need to extend. The exact cost will be a percentage of your loan value. This percentage is lender-specific.

If you need to extend your initial lock past the original expiration date, there are fees. Here’s an example of how fees may be structured on extensions:

Lock extension fees can be structured in any way the lender chooses. Extension fees are subject to change based on current market conditions. Ask your mortgage adviser for specific details on their lock extension options.

Can you change lenders after locking a rate?

Yes, you can change lenders even after locking a rate. It’s legal and doesn’t carry a specific fee or penalty.

Sometimes borrowers choose to switch lenders in the middle of the transaction. While this isn’t ideal for you, it may be necessary if your mortgage adviser is unresponsive or slow and if they lose paperwork or can’t close on time.

How much does it cost to change lenders?

There isn’t a specific fee for switching lenders or not finishing your purchase. But before switching, think about what you’ve already invested with your current lender and in your current loan.

Did you pay an application fee? Have you paid for an appraisal on the home? These items won’t be refunded. You may have to go through them again with your new lender. For these reasons, it may be best to try to work through your rate with your current lender rather than jumping to a new one.

If you’re changing for better rates, be sure to ask all about the new lender’s fees. Low rates don’t guarantee the best overall price when you factor in fees and closing costs. Increasingly, some companies are adding buy down fees to get you that attractive low rate.

» READ MORE: 5 important fees to know about before switching lenders

What if rates go down after you lock?

If rates go down, are you stuck with the one you locked with? Not always. Some lenders allow you to take advantage of lower rates during your lock period. This is called a float down option.

Having a float down option does cost more than a lock without one. Float down options start with a slightly higher rate to anticipate the possibility of a decrease later.

Should you let your lock expire to get a lower rate?

Let’s say you choose to save some money upfront by not choosing a float down rate option.

But then rates drop. Why not let your lock expire and lock again at the lower rate?

When you agree to a purchase contract, there’s a closing date that must be met. If you allow a rate lock to expire in hopes of getting a lower rate, you’ll be prevented from locking again on that property for 60 days. This delay will likely put you in breach of the contract and may mean you lose the home.

When borrowers delay a purchase on purpose, the home seller may decide to go with another buyer.

In short, letting your lock expire isn’t a good idea. If you’re concerned about rates or timelines, speak with your mortgage adviser.

If you’re refinancing, waiting for your lock to expire may seem to be a smart idea. During a refinance, you don’t have a strict closing timelines like a purchase. But allowing a lock to expire does have consequences.

When a borrower allows a lock to expire, the lender loses. When the lender loses, they have to make up for the loss somehow. This is why some lenders charge non-refundable fees for locks. This makes homebuying a more expensive for everyone.

When to lock a mortgage rate

Here’s the simple answer: if you’re comfortable with the monthly payment estimate your lender gives you with a particular rate, you should go ahead and lock. This isn’t a sales tactic; it’s just the smartest move to make.

Rates fluctuate daily according to economic factors that no one can predict with absolute accuracy. Knowing exactly when to lock a mortgage rate isn’t possible.

If a newsworthy economic event draws near, an experienced loan officer may advise you to hold off on locking for a little while in the hopes rates will fall. Or they may advise the opposite. That’s why it’s key that you select a lender who has your best interest in mind.