Whether you’re shopping for a new mortgage or simply refinancing, a rate lock is a useful feature to consider, allowing you to remove some risk and uncertainty from the home loan process.
Because mortgage rates fluctuate daily, the APR you’re quoted this week might not be available in three or four weeks when you close your mortgage. If it’s lower, lucky you. But what if it’s higher, and now your monthly payment has increased? Even worse is when that higher monthly payment means you no longer qualify for the same loan amount.
This is why rate locks exist, to protect homebuyers from market changes by locking in a rate that works for them, and knowing throughout the processing period that there won’t be any rate surprises.
Mortgage lenders typically offer locks for 30, 45 or 60 days, so the window for holding your rate and completing the closing isn’t unlimited. This means you won’t want to activate a lock too early in your house hunting process. A good time is when you have an accepted offer on a house.
Why not just ask for the longest rate lock possible? Because rate locks aren’t free. True, some lenders provide locks without charging a separate fee, but their cost of absorbing the risk is baked into their offered interest rate. Meanwhile, other lenders do charge an explicit fee. In either case, longer locks will cost you more.
So what if rates drop after you lock in? Though some lenders offer the option of a “float down” provision to take advantage of new lower rates, these also aren’t free, and can be expensive. It’s better to simply lock your rate at a comfortable level, rest easy that you’re protected, and not sweat the minor savings you’d have realized with a slightly lower rate.