When to Lock in Your Interest Rate

When to Lock in Your Interest Rate

When you apply for a mortgage, the interest rate offered to you may fluctuate depending on various factors such as the market conditions and your creditworthiness. In order to protect yourself from sudden increases in interest rates, you can choose to lock in a rate for a certain period of time.

What is a mortgage rate lock?

A mortgage rate lock in an agreement between you and the lender that the interest rate on your mortgage will remain the same for a specified period. This provides you with some certainty and peace of mind, knowing that your monthly mortgage payments will not change during the lock period. A standard rate lock is typically 30 to 60 days, sometimes more. 

You may choose to extend your rate lock if you need additional time to close.

When to lock in your rate:

When deciding whether to lock in a rate, it’s important to consider your own financial situation and the current market conditions. 

Typically speaking:
  • If interest rates are trending upwards, it may be a good idea to lock in a rate to avoid higher payments in the future. On the other hand, if rates are going down, you may want to wait before locking in a rate to take advantage of potential savings. 
  • If you’re building a new home and are unsure about the future of the market, or your closing is delayed, you could benefit from a rate lock.
  • Or if a rate increase could negatively impact the loan amount you qualify for.
It’s important to speak with your lender directly about whether or not a rate lock could benefit you, and to avoid locking your rate prematurely.

Are there any fees associated?

Most lenders will charge a fee for locking in a rate, which can be a percentage of the loan amount or a flat fee. Speak with your lender directly about any fees that might be associated with locking your rate.

Benefits of locking your rate:
  • Know you’re protected from rising rates in an unpredictable market for a specified period of time.
  • Plan and budget more accurately knowing your monthly mortgage payments.
Possible downsides:
  • Additional fees associated with locking your rate, or extending your lock. To help combat this, portions of our upfront fee are refundable at closing for our 105 and 165 day rate locks.
  • The market could improve. If rates decrease during your lock, you could be stuck at the higher rate. Some lenders may offer a float-down option that allows you to take advantage of lower interest rates if they become available during the lock period. For example, our borrowers may have the opportunity to lower their rate within 30 days of closing if a rate decrease occurs during their lock period. 
It’s important to note that a rate lock only applies to the specific lender and mortgage program you chose. If you decide to switch lenders or change the terms of your mortgage during the lock period, you may lose the rate lock and have to start over.

In conclusion, a mortgage rate lock can provide peace of mind and protection against rising interest rates, but it comes with a cost. Consider your financial situation and market conditions before deciding whether to lock in a rate, and be aware of any restrictions or limitations that may apply. Speak with your lender directly if you are interested in learning more about mortgage rate locks, or extending your rate lock.