Should You Lock In a Mortgage Rate Today?

Mortgage rates are low but expected to rise, and a mortgage rate lock can protect your interest rate from fluctuations before closing. Here’s what homebuyers need to know about how mortgage rate locks work, when to lock in a rate, how long rate locks last and more.

[Read: Best Mortgage Lenders.]

What Is a Mortgage Rate Lock?

A mortgage rate lock protects your mortgage from rising interest rates before closing. It’s a promise from a lender to deliver an interest rate, as long as your loan application does not change and you close on time.

“If the lender promises you 3.99% for zero points for 30 days, as long as the loan closes in 30 days, you’ll get that rate at that cost,” says Matt Gougé, a mortgage broker with UMortgage California in Sacramento.

How Long Can You Lock In a Mortgage Rate?

Most lenders will allow you to lock in your mortgage rate for 15, 30, 45 or 60 days. Even 90 days is relatively common, Gougé says.

You may be able to find 180- or 360-day mortgage rate locks, but Gougé warns that extended rate locks may come with higher rates or require a higher points cost to get.

When to Lock In a Mortgage Rate

Lenders have different rules about when you can lock in a mortgage rate. You may be able to get a rate lock from the time you select your mortgage up to five days before closing, according to Chase Bank.

Most lenders require a sales contract in place to lock in a rate, says Dave Krichmar, a Houston mortgage broker.

“Once you go under contract on a home, you can lock in your interest rate,” Krichmar says. “Meaning, when you lock in your rate that day, it’s going to be your rate through closing.”

Buyers who lock in their rate early are guessing that interest rates will soon rise. But keep in mind that an early lock-in risks that the rate lock could expire before you close. Talk with your lender before the lock expires to see whether you can pay to extend it.>

How to Lock In a Rate

Your lender may offer you a rate lock after you have been preapproved for a mortgage, or you can also just ask for one. Generally, the lender can lock in your rate within 24 hours after your loan officer has moved your mortgage file to underwriting, Krichmar says.

Note that your loan estimate will state whether your mortgage rate is locked but will not include the cost of the lock, the charge to extend it and other important details, according to the Consumer Financial Protection Bureau. You will need to ask your lender for this information.

[Read: Best Mortgage Refinance Lenders.]

Is a Rate Lock Free?

Some lenders charge borrowers for rate locks, and others offer them for free. Most lenders bake the cost of a rate lock into your loan instead of billing you separately for it.

A longer rate lock is more costly than a shorter one. For example, your lender might offer you 3.99% for 30 days with no points or the same rate locked in for 45 days at a points cost of $750.

“You don’t write a check for that cost,” Gougé says. “It’s coming out as the cost of the rate.”

You may pay a fee if you need to extend your rate lock period. Extension fees, when charged, vary widely but could be as high as 1% of your loan amount.

What Is a Mortgage Rate Float-Down Option?

A float-down option not only protects your interest rate, but also offers the choice to lower it if market rates drop a certain amount during the lock period.

However, a float down is not necessarily a slam dunk, because some policies make getting a lower rate difficult. Read the fine print in your float-down agreement. You will need to know how much rates have to fall to lock in the new rate.

Even if you hit that threshold, you aren’t guaranteed rock-bottom rates in a float-down situation. If you locked in at 4.25% and rates dropped to 4%, for example, the lender may offer 4.125% and adjust your points cost.

Can You Walk Away From a Rate Lock?

Even with a rate lock, you can still change lenders. However, switching lenders can mean losing money and time. The new rate from another lender may not be low enough to justify the hassle if you’re well into the mortgage process. You could even delay closing, which could put your sales contract in jeopardy.

At the same time, moving your loan could save you thousands over the life of your mortgage. And it might not be as big of an inconvenience as you might think.

“From a broker’s perspective, we can move your loan, so it’s not really anything to worry about,” Gougé says. But market rates rarely improve enough within a 30-day period to warrant changing lenders, he says.

On the flip side, a lender can walk away from your rate lock — but not without good reason. Your rate lock may be voided because of changes to your financial situation or loan application. Maybe something changed with your property appraisal, credit score, income or the loan itself, such as the repayment term or type of mortgage.

Pros and Cons of a Rate Lock

Pros

— A rate lock can protect you from interest rate increases for a period of time.

— It helps you budget because you know your exact monthly mortgage payment.

— Your lock may come with a float-down option to take advantage of lower rates that could become available.

Cons

— Interest rates could fall after you lock in your rate.

— Some lenders charge for rate locks.

— Savings could be canceled by the extra cost of a float-down option.

[Read: Best Adjustable-Rate Mortgage Lenders.]

Should You Lock In a Rate?

Lock in your mortgage rate as soon as you have a signed sales contract. You can always move to a lower rate if better offers show up, but you can’t go back and lock something in if rates climb.

Gougé’s advice? “If you like it, lock it,” he says.

More from U.S. News

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Should You Lock In a Mortgage Rate Today? originally appeared on usnews.com

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