Mortgage Rate Lock: How and When to Lock in Your Mortgage Rate

If you want to protect yourself from rapid interest rate fluctuations before closing on your mortgage, a good way to do so is with a mortgage rate lock. With a mortgage rate lock, your lender promises your rate won’t change during the rate lock period.

Even slight changes in interest rates can significantly affect your monthly payment and total interest paid over the life of the loan. Mortgage rate locks provide insurance against rising rates and can help you save money.

Key insights

• With a mortgage rate lock, your lender guarantees your rate won’t change if you close before the lock expires.
• If interest rates are rising, locking in your rate as early as possible can save you thousands of dollars in interest over the life of your loan.
• Make sure you don’t change your loan type, term or lender after locking in your rate, as all of these things can void it.

What is a mortgage rate lock?

A mortgage rate lock is when your lender guarantees to set your loan at a specific fixed rate, even if market interest rates change before your loan closes. Locking in your rate before closing protects you from rising mortgage rates during the mortgage rate lock period, which is usually 15 to 60 days.

You can lower your rate once during the rate lock period as long as you’ve purchased a float-down option.

Mortgage rate locks can save you money because if your interest rate increases, so do your monthly payment and total borrowing costs.

While a mortgage rate lock protects you from rising interest rates, you won’t benefit from lower rates unless you purchase a rate “float-down” option. Float-down options typically allow you to lower your rate once during the mortgage rate lock period. This can be helpful if you think rates might decrease before you close and you want the opportunity to lower your overall borrowing costs and monthly payment.

Josip Rupena, founder and CEO of Milo, a fintech direct mortgage lender, noted, “It might be a good idea [to float your rate] if you expect rates to go down due to market dynamics.” Floating your rate is waiting to lock in your mortgage rate until market conditions change or shortly before your scheduled closing.

Why mortgage rates change

Mortgage rates change with increases or decreases in mortgage demand and borrowing costs. Decreased mortgage rates tend to encourage spending and carry lower borrowing costs. Increased mortgage rates cost more and tend to slow spending.

Some primary factors that cause mortgage rates to change are:

• Economic conditions: Mortgage rates tend to fluctuate as economic conditions change. Rates are generally lower when market forces want to encourage continued or increased spending by consumers and businesses. Conversely, rates are generally higher when market forces want to slow down consumer or business spending.
• Federal funds rate: The central bank of the United States, the Federal Reserve (or Fed), aims to ensure maximum employment and a low or stable level of inflation. A key way the Fed adjusts its monetary policy to achieve these goals is by increasing or decreasing the federal funds rate, which determines how much it costs for banks to borrow money. Banks pass any borrowing cost changes on to borrowers in the form of increased or decreased interest rates.
• Mortgage-backed securities: Many lenders bundle the mortgages they originate and sell them to investors as mortgage-backed securities (MBS). The money investors earn on an MBS investment is directly tied to the bundled mortgages’ interest rates. Before buying an MBS, investors seek to ensure the return is big enough for the risk they’re taking on the investment. Lenders change the mortgage rates they charge to accommodate the returns investors are willing to accept.
• Mortgage demand: The three factors above all influence mortgage supply and demand. Interest rates change to help keep market supply and demand in equilibrium.

How long does a mortgage lock last?

Ultimately, how long a mortgage rate lock lasts depends on the type of loan you’re getting, the lender you choose, the terms of your loan and when you need to close.

A rate lock can last 15 to 60 days or more

For a traditional mortgage, you can generally lock in your rate for 15 to 60 days or more. If you’re getting a construction loan to build a home, you may be able to lock in your rate for as long as a year. When selecting the lock’s duration, consider how long it will take to close and add a little cushion to the lock period.

If your loan doesn’t close before the lock period expires, your mortgage rate will reset to current market rates, and you’ll need to relock it.

Additionally, changing the terms or type of loan you’re getting can void your mortgage rate lock, as lenders use these factors to set the rate. Your rate lock will also be voided if you use a different lender.

If you don’t want to lose out on a rate after it’s locked in, don’t make changes to the loan, and do your part to close on time.

When can you lock in your mortgage rate?

You can lock in your mortgage rate as early as when your loan is approved and as late as a few days before your scheduled closing.

If you’re getting a mortgage to build a home, you’ll usually pay a variable rate during construction, which converts to a fixed rate when construction is complete. If you’re worried about interest rates rising during the construction period, you may be able to lock in your rate while your home is being constructed, even if it takes months to build.

Locking in your rate is a way to protect yourself against changes in market conditions. When it comes to timing your rate lock, Rupena, the Milo CEO, said, “It’s best to lock in your rate when mortgage rates are lowest as possible. … Otherwise, the sooner, the better is generally the best option as rates tend to fluctuate — and it’s usually hard to predict these fluctuations.”

Besides considering market conditions, the timing of when you can lock in your mortgage rate also depends on your specific situation. Brad Cahoone, a mortgage broker and the president of brokerage Global Home Finance, said: “It is best to lock in your rate when you cannot or do not want to experience market pricing deterioration that may affect the pricing you have in place for your home loan. If you're building, for example, you need to consider a lender that offers rate locks long enough for the construction of your home to be completed and avoid rate increases eight to 12 months out.”

You’ll also want to consider if the rate lock’s length is right for your needs. If you don’t anticipate closing the loan before the lock expires, your rate will reset to the current market rate.

How to lock in your mortgage rate

Before you can lock in your mortgage rate, you need to research mortgage options, apply for a mortgage and get approved. Once you’re approved, you can lock in your rate. Take the following steps to lock in your mortgage rate:

• Research mortgage solutions. Consider the type of mortgage you want to get and the mortgage lender you want to use. Weigh factors including whether the mortgage lender offers the type of loan you want, the application process, what it takes to qualify, how much you’ll pay and the funding speed.
• Apply for a mortgage. After you’ve selected a mortgage lender, it’s time to apply. To expedite the application process, have your personal information and income documentation ready, as you’ll need to provide this information to your lender.
• Get approved. Once you’ve applied for the mortgage, provide your lender all requested documentation (e.g., tax returns, pay stubs, bank statements) as soon as possible. The quicker you respond to your lender’s requests, the quicker you’ll be able to get approved for a mortgage.
• Lock in your rate. After your mortgage is approved, you’ll be able to lock in your interest rate. Most mortgage lenders allow you to do this via the online portal you use to submit documentation and track the status of your mortgage application.

Bottom line

Locking your rate before you close provides protection against rising interest rates. In an environment where rates are rising or unpredictable, you’ll want to lock your rate because even the slightest change could cost you thousands of dollars in interest over the life of your loan. If you think rates might decrease before you close, you may want to purchase a float-down option so you don’t lose out on potential savings.

Ultimately, the best time to lock in your rate largely depends on market conditions and your situation. Pay attention to what’s happening in the market so you’re better equipped to decide when to lock in your rate.