Mortgage rate locks (and floats) — and why your timing matters (2024)

It can take 30 to 60 days to close on a home loan, but mortgage interest rates change daily, and over several weeks or months, those adjustments can be drastic. In mid-December 2023, for instance, the average rate for a 30-year fixed-rate mortgage was roughly 7.5%, according to Curinos data. But the average for the previous month was above 8%.

A mortgage rate lock can protect you from these fluctuations and plan ahead, since your estimated rate gauges your future monthly payment. However, this feature isn’t entirely foolproof, or even worthwhile in all cases. There are mortgage rate lock fees, plus the potential hassle of extending the lock period after its expiration.

Here’s what to know before you decide to lock in — or float — your mortgage rate.

What are mortgage rate locks?

A mortgage rate lock, sometimes called a lock-in mortgage rate, is a feature that many of the best lenders offer if you’re borrowing or refinancing a home loan. It ensures that the interest rate you qualify for won’t change as long as you close on the loan within the lock period (and there are no material changes to the details in your application).

In homebuying cases, lenders won’t let you lock in a mortgage rate until a seller accepts your offer to buy a particular property. However, some lenders may allow you to get a mortgage rate lock as soon as you receive initial approval. The deadline for locking in a rate is typically five days before you close.

That said, a rate lock only reflects a lender’s commitment. It doesn’t prevent you from continuing to shop around and look for a better interest rate from another lender.

Rate lock examples

When a mortgage rate lock works: Let's say your lender offers a 45-day mortgage rate lock, so you lock in a 6% interest rate. By the time you're ready to close 30 days later, the interest rate has risen to 6.5%. But because you locked in the 6% rate, that's what you'll get.

When a mortgage rate lock goes awry: Let's say that you face a significant financial emergency while your home loan is still being processed. And because the money in your savings account is earmarked for a down payment and closing costs, you opt to put the expense on a credit card.

Unfortunately, that move increases your credit utilization rate, which causes your credit scores to drop. It also slightly increases your debt-to-income ratio. When the lender re-evaluates your credit history before finalizing the loan, it determines it can no longer honor the 6% rate, and instead offers you a 6.5% interest rate.

What is a mortgage rate float-down?

Mortgage rate locks can protect you from rising interest rates, but they don't benefit you if rates drop during your lock period.

To give you more flexibility — and possibly prevent you from borrowing elsewhere — some lenders offer a float-down option in tandem with your rate lock. A float-down option honors your locked-in rate or the current rate, whichever is lower. This feature typically costs extra, but it could pay off in long-term interest savings.

Before you agree to a float-down option, though, review the terms carefully. The lender may stipulate how much interest rates need to come down for you to qualify, and if you don't meet that threshold, you'll be out the upfront fee and still have the same rate.

A float-down option can be a more convenient alternative than restarting the shopping-around process. However, if your lender doesn’t offer the ability to “float your rate,” you won’t be able to access the market’s lower APRs. Instead, investigate competing lenders’ rates, given that percentage point differences in your rate can significantly change the total cost of your repayment (just ask our mortgage payment calculator).

Even if you locked in a rate with one lender, switching to another with a lower rate could be wise — as long as it doesn’t affect the closing of your loan. You might even force your current lender to match or beat another offer.

"Lenders may have the ability to renegotiate the rate in the event of large drops, so check with your current lender before making a drastic move,” said Craig Garcia, president of Capital Partners Mortgage.

When to lock in your mortgage rate

It's impossible to predict the movement of mortgage rates, and for many homebuyers, the certainty that a rate lock provides has intrinsic value. With that in mind, requesting a mortgage rate lock may make sense if:

• You've shopped around and confirmed your lender offers the best rate.
• You're confident you'll close the loan within the rate lock period.
• You aren't willing to take on the risk of rates climbing before you close.
• You don't want to have to buy discount points to reduce your rate at closing.

Even if interest rates are generally trending downward, they can still experience volatility in the short term, and even a slightly higher rate can cost you thousands or even tens of thousands of dollars over a 15- or 30-year repayment period.

If your lender offers a float-down option, review the cost and determine whether it's worth it for the added flexibility.

That said, it may not make sense to lock in a rate before you've found a house unless you can qualify for a long rate lock period. You may also want to wait if interest rates appear to be at a peak and you don't want to pay extra for a float-down option — though some risk remains that rates won't come down.

Duration of mortgage rate lock periods

Depending on the lender you choose, you may be able to lock in an interest rate for anywhere between 30 and 120 days. However, longer mortgage rate lock periods are less common and often cost a lot more.

Here are examples of reputable mortgage lenders and how long their rate locks last:

What happens if your mortgage rate lock expires?

Mortgage rate locks expire at the end of the period you and your lender agreed upon. If you're not ready to close before that date, you can ask your lender about extending the rate lock, possibly for an extra fee.

Extending a rate lock can be worthwhile if mortgage rates have increased since the lock-in period began. In some cases, though, a lender may be unwilling to extend it. If you do qualify, you may only be able to extend your rate lock for a week or two.

If interest rates have decreased, it may behoove you to let the rate lock expire and try to get a lower interest rate.

How much does it cost to lock in your mortgage rate?

Mortgage rate lock fees can vary depending on the lender, the length of your lock-in period and other variables. Here's what to expect:

• Initial rate lock: Some lenders may charge between 0.25% and 0.50% of the total loan amount for a lock-in period of up to 60 days. On a $500,000 loan, for instance, that would run you $1,250 to $2,500.

  If you want a longer period, you may need to pay as much as 1% of your loan amount. That said, some lenders may offer shorter rate locks for free, especially if they're confident that rates will decline.

• Rate lock extension: If you need to extend your rate lock, it may cost an additional 0.3% to 0.4% of your loan amount.
  
• Float-down option: If you believe interest rates might go down and you don't want to restart the mortgage process with another lender, a float-down option may cost between 0.5% and 1% of your loan amount.

Before you agree to a rate lock, an extension or a float-down option, carefully consider your situation to determine whether the cost is worth it.

Pros and cons of mortgage rate locks

When buying a home, a rate lock gives you some level of certainty. You don't have to stress about interest rates going up, and you'll have a good estimate of what your monthly mortgage payment will look like.

At the same time, your rate may still change if your income or credit history changes before you close on your loan. Additionally, a rate lock doesn't benefit you if interest rates drop — and while a float-down option may be available, it's likely not cheap. Also, locking in a rate may pressure you to close before you're ready, and if it expires, you may have to pay more to extend it or face a higher rate.

How to lock in a low mortgage rate

Before you talk to a lender about locking in a mortgage rate, it's important to ensure that the rate you lock in is the best one available. Here are some steps you can take:

1. Review your credit. Check your credit scores and review your credit reports to understand your overall credit health. If your credit needs work, use your credit reports to determine which areas to address. Possible steps include paying down credit card debt and disputing inaccurate credit report information. AnnualCreditReport.com is a good first stop.
   
2. Shop around. Submit mortgage preapproval applications with a handful of lenders, so you can compare potential offers. In addition to interest rates, you'll also want to look at origination fees, down payment requirements, time to close, rate lock period durations and costs, plus float-down options.
   
3. Find a home and make an offer. While some lenders let you lock in a mortgage rate before you make an offer, you may not want to pay extra for a longer lock-in period. Start the house-hunting process and make an offer on the home you want.
   
4. Contact your lender or broker. They'll provide any information you need and some recommendations. You'll then choose the mortgage rate lock period you want and any add-ons to complete the process.