Should you lock your mortgage rate? Pros, cons and tips

Once you are under contract or ready to refinance, one decision affects the whole file: when to lock your rate. Rates move every day with the market, and nobody can time them. This article explains how locks work, what they cost and how we decide together when to lock.

What a rate lock is

A rate lock is the lender’s promise to hold your rate and pricing until a set date. If rates rise before closing, your rate does not. The lock holds only if you close by the expiration date and your application does not change.

Page 1 of your Loan Estimate shows whether your rate is locked and until when. Some lenders lock when they issue the Loan Estimate. Others do not, so it is worth asking.

Locking: the pros and cons

Pros

• Protection if rates rise before closing.
• A known payment and cash to close, so you can plan.
• One less thing to monitor day to day.

Cons

• If rates fall, you generally do not get the lower rate unless you have a float-down option.
• If closing is delayed past your lock date, extending can cost money.

Waiting to lock is a bet

Until you lock, your rate can change with the market every day, sometimes more than once a day. Rates move with the news in both directions. Good news for the economy often means higher rates, and bad news lower ones, but surprises happen both ways. Nobody can time it, and that includes us.

While you wait, a rise in rates raises your payment and can lower the amount you qualify for. On a tight debt-to-income ratio, a rise can put an approval at risk.

Waiting for a better rate is a bet. Locking when the numbers work is a decision.

How we lock

Rates move every day with the market. When you are ready and the numbers look right, we lock. We will tell you what is moving the market. We will not tell you where it is going.

Once your rate is locked, the lender confirms the lock and its end date in writing, and a revised Loan Estimate shows the lock on page 1 within three business days. From then on, the work is to close before the lock ends: the appraisal, title, insurance and the lender’s conditions.

Lock periods

Locks are commonly offered for 30, 45 or 60 days, and sometimes longer. As a rule, a longer lock costs more, either as a slightly higher rate or a fee, because the lender carries the risk longer.

The right lock is the shortest one that safely covers your closing. Consider these factors:

• Your contract date. Count back from closing, with a buffer.
• Appraisal timing. In rural Southwest Colorado, appraisals on acreage, homes with wells and septic, or unique properties can take longer to schedule.
• Extra steps. Well and septic inspections, surveys, HOA documents, repairs or a condo review can all add days.
• New construction or renovation. Building seasons here are short, and schedules can slip. Some lenders offer extended locks for longer timelines, usually at a higher cost.

A lock that is too short can cost more than one that is slightly longer, once you include the cost of an extension.

Extensions

If you cannot close by your lock date, most lenders will extend the lock for a fee. Fees vary by lender. They are usually charged per day or for a set number of days, and quoted as a fraction of a point (a point is 1% of the loan amount). Your Loan Estimate will not show extension costs, so ask before you lock:

• What does an extension cost, and for how many days?
• Who pays if the delay is the lender’s fault?
• Is there a limit on how many times it can be extended?

Float-down options

Some lenders offer a float-down, which is a chance to lower your locked rate if the market improves before closing. Terms vary widely. Common conditions include:

• Rates must drop by a set amount before it applies.
• You can use it only once, and only within a certain window before closing.
• It may cost a fee or come with slightly higher pricing up front.

A float-down works like insurance. It is worth it only if the cost is small compared with what you would likely save. Get the exact terms in writing.

If your lock expires

If your lock expires before you close, you will need to relock. Many lenders relock at the worse of your original pricing or the current market. If rates have risen, your rate or costs go up. If they have fallen, you may not get the full benefit. Policies vary by lender, so we confirm how an expired lock is handled before you lock.

What can change a locked rate

Even with a lock, your pricing can change if your file changes. Common causes include:

• A different loan amount, loan type or down payment
• An appraisal that comes in higher or lower than expected
• A credit score change, such as a new debt or a missed payment
• Income that cannot be documented, such as overtime or bonus

It is best to avoid new credit and large financial changes until after closing.

Tips before you lock

1. Compare offers on the same day, for the same loan and lock period. See rate and APR.
2. Decide on points before you lock. The points lesson shows the trade-off.
3. Choose a lock that covers your closing with a buffer.
4. Ask about extension costs, float-down terms and expired-lock policy up front.
5. Read what moves mortgage rates, so headlines do not rush your decision.

Because we are a Mortgage Broker, we compare lock terms as well as rates across several wholesale lenders. See how brokers find better rates and our process.

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Sources: CFPB: What’s a lock-in or a rate lock?. CFPB: How should I use lender credits and points?.