Mortgage Rate Lock: When and Why To Lock Your Interest Rate

After months of hunting for the right property, you’ve finally found the one and been approved for a home loan. Before you start celebrating, there’s one more thing to do that could save you thousands. If you’re happy with your rate and don’t want to chance paying more, it’s time to lock it in.

What Is a Mortgage Rate Lock, and How Does It Work?

Think of a rate lock as a lender-backed guarantee that your interest rate won’t change for a set period. Homeowners often request a rate lock during the initial loan approval process to avoid unexpected changes during underwriting and closing. While this offers protection against rate increases, it may also mean you won’t be able to take advantage of a decrease if the economy shifts in your favor.

Typical lock periods last between 30 and 60 days, with some exceptions. For example, a lock on a construction loan may extend up to one year. Discuss your expected closing date with your lender to choose a timeframe that includes a bit of a buffer just in case. Keep in mind that some lenders may charge a rate lock fee. These can vary widely but usually depend on the length of your loan, how much you’re borrowing, and how long you want to lock in your rate for.

When Should I Lock In?

Here’s the thing: Without a crystal ball, even esteemed economists can’t predict what the market is going to do with complete accuracy. Instead of stressing out about locking in at the perfect time, ask yourself if you feel secure about your approved rate. Do the estimated monthly payments fit comfortably in your budget? If so, consider locking in to keep it that way. It’s also worth asking your lender if they offer a float down option. This add-on gives you a little wiggle room by letting you adjust your rate once if interest decreases before your closing date.

What Happens When a Rate Lock Expires?

Once a rate lock expires, your rate will be subject to daily interest rate changes. If you haven’t closed on your property yet and your rate lock deadline is approaching, contact your lender to ask for an extension. Make sure to promptly send them any information they request to prevent being stuck with a rate that could be higher than you originally anticipated.

Locking in at a rate you’re comfortable with can eliminate a lot of uncertainty throughout the closing process. If you want to know exactly how much your monthly payments will be, this is a smart move that can ease anxiety and make the entire home-buying experience more enjoyable.

Sources: Nerdwallet.com, Consumerfinance.gov