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Morty’s Whiteboard Series: Rate Locks

Mortgage Rate Lock

Nobody has a crystal ball telling them where interest rates will be moving over the next few months, and this is why locking your mortgage interest rate often makes sense: it protects you from uncertainty and volatility in the market by guaranteeing a set interest rate over a set period of time.

If your interest rate goes up, so does your monthly mortgage payment – this could prevent you from qualifying for your home loan.

Some lenders don’t even charge a fee for locking your rate, making it an even more attractive option for the typical borrower. If they do charge, many lenders simply build this cost into the interest rate you’re locking.

Be sure to ask your loan officer if you are uncertain whether there is a cost.

How do rate locks work?

Lenders will typically let you lock your interest rate for a period of 30, 45, or even 60 days (or longer than 60 days in some cases).

For example, if you lock your rate today (November 27) at 4.50%, this same interest rate will be available for you if you close your loan by December 27, even if rates move above 4.50%.

What happens if interest rates go down between now and December 27? Well, it would be really nice to have your cake and it eat it too, right?

Some lock contracts have “float-down” provisions that give you the flexibility to lock at a lower interest rate if one becomes available before your loan closing.

Unfortunately, most lenders won’t let you do this. If they do, it often comes at a significant cost to you.

When should I lock my rate and for how long?

The answer depends on your circumstances.

If you’ve already signed a purchase agreement on your home and the type of documentation your lender requires is readily available, then you should be able to lock your rate as soon as you’re approved and close within 30 days (in which case a 30-day lock is sufficient).

On the other hand, if you’re purchasing a short sale, there’s no point on even locking your rate until the seller’s lender approves it. This could take months!

Final words of wisdom on rate locks

All in all, we usually recommend locking your rate more often than we recommend letting it float, but we strongly suggest that you take the time to think it through.

Here are two more parting thoughts on rate locks:

  1. Discuss the rate lock thoroughly with your loan officer. A good loan officer will help you understand all the pros and cons as well as help you determine when to lock, for how long and whether it makes sense for you to pay for a float-down (if available).

  2. Keep track of the rate lock expiration date and don’t just rely on your loan officer (even if you’re working with the best).  Take control over your mortgage process and make sure that you submit all required documentation on time to keep the process running smoothly.

To help you keep track of your rate lock, as well as all of your mortgage application documents and deadlines, we’ve built an easy-to-use Mortgage Loan Closing Plan with access to a personal MortgageHippo mortgage guide and the most advanced mortgage calculator out there.

Morty’s Whiteboard series

Morty’s Whiteboard series will not only give you the knowledge and information to help better understand your mortgage options, but will also help you make sense of that information and apply it to your personal situation.

Mortgage “experts” focus almost exclusively on sharing encyclopedic information on mortgages (e.g., what specific loan terms mean, where rates are going, how to pay points, etc.).

Of course, information is always important.

However, what these “experts” often ignore is giving you the right tools to make good use of that information. Think about this: How far would a homebuilder go without a hammer and saw? Blueprints alone are simply not enough if you don’t have the right tools.

At MortgageHippo, we share valuable information with you but focus equally on the tools; because with the right tools, the information is turbocharged and ultimately made more useful. That’s our goal for you.


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