Mortgage Rate Lock: A Guide To Protect You From Rate Fluctuations (2024)

FAQs

What is the downside of a rate lock to the borrower? ›

If your rate is not locked, it can change at any time. There can be a downside to a rate lock. It may be expensive to extend if your transaction needs more time. And, a rate lock may lock you out of a lower interest rate if rates fall after you get your loan offer.

Mortgage rates change frequently. A rate lock helps protect you from those fluctuations, so you won't pay more if prevailing market rates rise before you close on your loan. You can lock your rate for anywhere from 30 days to 120 days, depending on the lender.

Monday is the best day to lock-in mortgage rates; Wednesdays are risky. Mortgage rates are in constant flux, even changing multiple times a day.

You can back out of a mortgage rate lock, but there are consequences. Backing out of a rate lock means giving up the application you've put time and money into. You'll have to start your mortgage application over from the start, and you'll likely have to re-pay fees like the credit check and home appraisal.

Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you. The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts.

If you think rates are likely to stay the same or increase, you might be better off locking. But again, no one ever really knows for certain what the rates will do, so you must be willing to accept the risk if you choose to float. If uncertainty keeps you up at night, locking is definitely the better option.

Your lender may offer multiple rate lock periods, giving you the flexibility to choose the term you want. However, you may not be able to negotiate the fee, and once you've entered a lock-in period, you typically can't change the terms except to extend it.

A mortgage rate lock extension fee is a charge borrowers pay to retain the interest rate they were initially quoted after a specific lock period expires. A lock extension fee can cost a few hundred or thousand of dollars, depending on the lender's policy, the reason for the extension and other factors.

When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.

If you're switching because interest rates have dropped, you don't have to worry about this. But in other scenarios, if you've locked in a rate with your current lender, the new lender isn't bound by that agreement, which could result in a higher interest rate.

Are you committed if you lock in a rate? ›

If you accept the lock, you and the lender are both committed, regardless of changes in interest rates in the period until closing.

So if you're on the fence about buying or refinancing a home this winter, know that January and February bring some of the lowest mortgage rates of the year.

Answer: You are free to withdraw your application and break your lock at any time.

The charge for a rate lock could range from 0.25% to 0.5% of the amount of your mortgage. For example, on a mortgage loan of $450,000, a 0.25% rate lock deposit would be $1,125.

After a lock expires, most lenders will allow you to relock at the higher of the prevailing market rates/points, or the originally locked rates/points. In most cases you will not get a lower rate if rates drop.

Monthly payments might increase: The biggest disadvantage of an ARM is the likelihood of your rate going up. If rates have risen since you took out the loan, your payments will increase when the loan resets.

ARMs offers come with substantial risks, such as higher rates due to interest rate changes in the housing market. Your first adjustment might only raise your monthly mortgage payment a little bit. Subsequent adjustments can put pressure on your financial situation.

As long as the transaction closes during the rate lock period, you'll get that promised rate. If your loan doesn't close by the end of that window, your lender might charge you an extension fee to keep that lower rate while you finalize the deal.

As mentioned above, depending on your lender, breaking a fixed-rate mortgage may come with penalties attached – and these penalties can quickly add up. For example: Variable-rate mortgage holders might expect to pay 3 months of interest (and potential additional fees) as a penalty.