What's a lock-in or a rate lock on a mortgage? | Consumer Financial Protection Bureau (2024)

FAQs

What's a lock-in or a rate lock on a mortgage? | Consumer Financial Protection Bureau? ›

A lock-in or rate lock on a mortgage loan means that your interest rate won't change between the offer and closing, as long as you close within the specified time frame and there are no changes to your application. Mortgage interest rates can change daily, sometimes hourly.

A mortgage rate lock keeps your rate from changing for a certain period. Since 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.

Missed opportunities: If market rates drop after you've locked in your rate, you miss out on the lower rates. Unfortunately, you'll pay more in interest over the loan term. Fees and costs: Some lenders charge for a rate lock, particularly if you want to do so for an extended period.

You can't unlock your mortgage rate after locking. But there may be other ways to get a lower rate after you've locked. However, the agreement works both ways. If rates suddenly fall, you can't just back out of the rate lock and expect your lender to offer you a lower interest rate.

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.

When you lock the 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.

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

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.

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.

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.

How much does it cost to lock in a mortgage rate? ›

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.

If it is due to the seller, then many times, you can negotiate for the seller to pay for any extension — or other costs — incurred by the delay." Even if it's not another party's fault, your lender may still cover the extension — especially if it's only a short one you're in need of.

Most lenders offer rate holds of 30, 60, 90, or 120 days, but it is possible to find rate holds for up to 150 days. During the rate hold, the mortgage rate will stay unchanged.

A float-down option gives borrowers the opportunity to take advantage of lower interest rates if you've already locked your mortgage rate. Lenders have rules regarding how and when you can use the option to float the rate down. Most lenders charge a fee, which is usually a percentage of your loan amount.

The main benefit of locking in to a fixed rate loan is that you pay the same interest rate and same repayment for the fixed-rate period. But this can also come with a downside if you fix in all your borrowings.

A rate lock protects you from the potential of rising interest rates during the home buying process. Some rate locks will also grant a float-down provision that will allow you to take advantage of lower rates in the market. A rate lock period will typically be 30 to 60 days.

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

A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage. The cost of a mortgage is calculated based on an annual interest rate, and since you're borrowing the money for half as long, the total interest paid will likely be half of what you'd pay over 30 years.

Can I lock in a mortgage rate for 6 months? Yes. However, due to fees and expenses, most long term locks are used when buying a new construction home as opposed to a resale home – new construction lenders will often lock mortgage rates for periods of 120 days, 180 days, 270 days, and 360 days.

No. When you get a preapproval letter, the mortgage rate you're quoted will be a 'floating' rate. In other words, it will rise and fall in line with the overall market. Your first chance to lock a mortgage rate is typically after you sign a purchase agreement to buy a home and have your loan application finalized.