Can You Lock Your Mortgage Rate?

Locking an interest rate at its lowest point is a dream of every borrower. But can you lock mortgage rate, and if you can, when is the best time to do so? Locking a mortgage rate can be risky since unlocking it will come with certain consequences. Find out all there is to know about mortgage locks.

Can you lock the mortgage rate? Yes, you can lock your mortgage rate. Locking in a mortgage rate means that the lender will guarantee the interest rate on the loan for a specific period of time. This protects you from fluctuations in the market that could cause your interest rate to go up.

Most lenders offer a lock-in period of 30 or 60 days, but some lenders offer longer periods. It’s important to note that locking in a mortgage rate usually comes with a fee, so make sure you factor that into your decision.

If you’re considering locking in your mortgage rate, be sure to consult with your lender to find out what options are available to you.

Man giving a woman a house key

The purpose of a mortgage rate lock is to protect the borrower against the rise of interest rates during the homebuying process. Still, not all borrowers decide to take a lock.

Let’s find out more about this.

What Is Mortgage Locking?

As you know, applying for a mortgage takes some time, and until you are approved for a mortgage and you close the deal on a home purchase, it will last a while.

The purpose of interest rate locking is that your interest rate will remain the same until the locking period is over, ergo closing of the mortgage, which is usually enough time for you to purchase a home. A lock on a mortgage is obligatory for the borrower and the lender and the rate will remain consistent regardless of changes in the market.

However, even if you lock your rate, some circumstances can change this lock. Here is when that can happen:

  • If appraisal on a home is different from the estimated value,
  • If there is a decrease in your credit score,
  • If there is a new down payment amount,
  • If there is an income on your application that can not be verified.

How a Mortgage Rate Lock Works

Let’s explain this a bit better. What happens when you lock a rate. Picture this – you have found the mortgage lender, you get a mortgage approval, and you find the interest rates you will be paying for the next 30 years pretty affordable.

In this case, you will have to lock that interest rate or protect it. Once this lock period is over you will start closing a deal with your lender. With a lock on the interest rate, you will get the rates you were initially offered.

Locks usually last for 30 or 60 days which is enough time for a lender to finish the mortgage application.   

What are the Consequences of Failing to Lock in Your Mortgage Rate?

Locking a mortgage rate is essential because this rate will affect not only your monthly payments but also the amount you will have to pay to the lender over the next 30 years. So if you fail to lock your rate at the lowest point, it can happen that your rate goes up until the application is over.

On the other hand, the other risk is to lock your mortgage while it is on the highest point and end up paying too much. This is why it is crucial to talk to your mortgage broker about current rate trends in your area. If rates are on the rise, you should lock them immediately. Still, nobody can predict how the market will behave.

This is why it is always best to go with a calculated risk, not to lose too much, and yet not to give much either. Here is how much money you will lose if you lock in the wrong time and end up with a rate that is only 1% higher. These are the numbers on a borrowed amount of $100,000.

RateMonthly paymentsTotal Interest Paid Over 30 years
4.25%$491.94$70,098.36
5.25%$552.20$98,793.33
Difference60.2628,694.97

Can You Lock Mortgage Rate and When You Should Do So?

Even though locking a rate at the lowest point may seem like a dream, it will come with some cost. Some lenders will charge you a mortgage rate deposit, while others will offer you a bit higher interest rate than the lock rate.

Also, some borrowers may ask you to pay a specific number of mortgage points to keep the desired rate.

What Is a Float-Down Mortgage Rate Lock?

Some lenders will offer you a float-down mortgage lock. This option is designed to offer you the possibility to take lower rates before you close the loan.

Many borrowers consider this option to be a win-win situation because it allows you to keep the rate you had at the time of the locking and yet to take a lower rate if that happens at the moment of loan closing.

However, this will also come at a certain cost, so make sure you ask your lender how much you will have to pay to take a lower interest rate. Also, if rate fluctuation is not significant, it may not even be considered for float-down policy action.

You will have to be able to drop your rate at least 0.25% to use this option, and the fee can cost as much as 1% of the loan amount.

Man showing charts to a couple

The Bottom Line: Should You Take a Mortgage Lock?

The choice is entirely up to you, but in our opinion, there is no harm in bargaining for a better rate. After all, these loans are probably the biggest ones you will have in life and will last for a long time. As you could see, a significant amount of money can be saved if you manage to take a lower rate.

Nevertheless, timing is of utmost importance when locking because you don’t want to end up locking it at the highest point.

So before you start with any negotiations, make sure you understand everything that you are getting into. Ask for guidance from your mortgage broker or real estate agent. (Here is a post about the difference between a broker and an agent.)

They should know the pulse of the market and can give you valuable advice.