Mortgage rate locks: What they are, how they work — and why timing is everything
If you’re house hunting right now, you may be feeling a mix of excitement and uncertainty. Excitement because the Fed just cut rates, which means you could receive a lower mortgage rate and monthly payment. But uncertainty because rates still change daily — what if you miss out on a good deal?
Mortgage rate locks are one way to add some predictability to your life and prevent rates from fluctuating before you close. But with APRs potentially dropping, is a rate lock still a smart move?
Here’s what a rate lock is, how it works and when it might be right for you.
What is a mortgage rate lock?
A mortgage rate lock is a guarantee from your lender that your interest rate won't change for a set period of time — often 30 to 60 days or more. It allows you to lock in today's rates to protect you from market fluctuations during the homebuying or refinancing process. You might also hear it called a “lock-in.”
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If you don't lock in your rate, you're "floating" it. This means your final rate could end up higher or lower than today's rates, depending on market changes before you close.
How does a mortgage rate lock work?
Locking in your rate shields you from the impact of changing interest rates. Your lender is obligated to honor the rate they promised you, even if market conditions change, as long as your application has no major changes.
Rate locks can be beneficial if you’re a current or soon-to-be retiree. "Locking in a mortgage rate is really about keeping things steady and secure, especially when you're on a fixed income,” says Matt Schwartz, mortgage broker and founder of the VA Loan Network. “I've had clients in their 60s who locked in a rate just before they spiked, and it saved them a lot on monthly payments.”
For example, if you lock in a 6% interest rate for 45 days and rates jump to 6.5% a week later, you're still guaranteed a 6% rate. On a conventional 30-year, $400,000 mortgage, that’s the equivalent of saving $46,825 in interest over the life of your loan.
However, if rates fall to 5.5% while you have a rate lock for 6%, you might feel like you missed out. That’s why some lenders offer a float-down option.
Related reading: Why a 1% mortgage rate change matters more than you think
What is a float-down option — and is it worth it?
A float-down option is like an insurance policy on your rate lock. If rates decrease during your lock period, you can "float down" to the lower rate.
This feature usually comes with a fee that can range from 0.25% to 1% of your mortgage amount, depending on the lender. But the potential savings can be worth it if interest rates are falling, like after a Fed rate cut. Your lender can tell you if it offers a float-down option and what the terms are.
How to lock in your mortgage rate
Most homebuyers choose to lock their rate after their offer has been accepted and they've applied for their loan. At this point, you usually have a property address and a clear idea of your closing date. This is important because you want your rate lock to last through closing. "A lot of people don't realize rate locks don't last forever — you have to pay attention to the expiration date," says Schwartz.
You’ll usually follow these steps to lock in your rate:
Get preapproved for a mortgage. Gather your personal and financial information, and apply for preapproval with a lender
Find your dream home and make an offer. Work with a real estate agent or draw up your offer letter on your own, and then put down your earnest money deposit.
After your offer is accepted, submit your loan application. You can apply with the lender that preapproved you, or apply with several lenders to compare the interest rates, APRs, terms and closing costs.
Choose a lender and lock in your rate. Note the length of your mortgage rate lock to ensure it covers you through your closing date.
Close on your new home. Sign the final paperwork and get your keys to your new home!
Can I switch lenders after locking in a mortgage rate?
Yes, but you risk losing your earnest money and potentially the house you're interested in. Applying with a new lender resets the time needed to confirm your creditworthiness and financials, setting you back by a month or more. In a tight market, it's possible a new homebuyer could swoop in with a more attractive offer in that time. Think carefully about any benefits of switching so late in the process, and talk with a trusted agent or advisor if you're not sure how to proceed.
How much do rate locks cost?
You’ll usually pay 0.25% to 1% of your loan amount for a rate lock, depending on the lender. On a $400,000 mortgage loan, that’s the equivalent of paying from $1,000 to $4,000.
Generally, the longer you want to lock in your rate, the more it will cost. For a 30-day rate lock, you might pay as little as 0.25%. If you want to lock in your rate for 60 days or more, the cost could climb to 2% of your loan.
We talked about how locking in a 6% rate instead of a 6.5% rate on a $400,000, 30-year mortgage could save you $46,825 over the life of the loan. In this scenario, even paying $4,000 for a rate lock would still leave you with a net savings of $42,825.
Some mortgage lenders offer “free” rate locks. But the cost of these free locks is often built into your loan in other ways, such as through higher origination fees or slightly higher interest rates.
Related reading: What are the monthly payments on a $500,000 mortgage?
When should you lock in a mortgage rate?
As a rule of thumb, most experts recommend locking in your rate after your offer has been accepted and you've submitted your loan application. This is when you have a clear idea of your closing date, which is key because you want your rate lock to last through closing.
If you lock in too early and closing is delayed, your rate lock could expire before you've finalized your purchase. If that happens, you might have to pay a fee to extend your lock or risk getting stuck with a higher interest rate.
By contrast, if you wait too long to lock and rates keep rising, you could end up paying more than you need to. It's a bit of a balancing act.
Melissa Cohn, regional vice president of William Raveis Mortgage, says that choosing the right time to lock in is based on several factors:
Where are rates headed? “In today's downward rate environment, there is no need to lock in right away,” Cohn says.
How much time do you need? You’ll want your rate lock to get you to your expected closing date.
Are there any unknowns that can impact the rate — such as a low loan-to-value (LTV) ratio, or your mortgage amount divided by the property’s value? Lenders extend the best rates for LTVs of under 80%, especially for refinancing.
Are mortgage rate locks worth it?
Rate locks may be worth it if you’re on a fixed income or buying a home in a volatile market. At the same time, a rate lock isn't an absolute guarantee.
Your lock could be voided if there are changes to your application, such as:
A change in the type of mortgage you need.
A change in the income reported on your application.
A change in your credit score because you opened a new account or had a late payment.
A change in loan amount because the appraisal value came back higher or lower than expected.
"If you're not a fan of risk, locking in early can give you peace of mind. I've seen people try to wait for a better rate, only to miss out and end up with a higher payment,” says Schwartz. “My advice? If the rate works for you, lock it in and don't take chances with your retirement funds."
Dig deeper: Buying a new home after retirement: Pros, cons and weighing your options
Questions to ask before locking in your rate
Rate-lock policies vary by lender, so Cohn recommends asking these questions to protect yourself from surprises:
Are you locking in for enough time to close the loan before the rate lock expires?
If the rates drop, is there a float-down option?
If there is a float-down option, is it free — or do you have to pay for it?
If the rate lock expires before you close, what are the costs of extending the lock?
Why do mortgage rates fluctuate?
Mortgage rates are influenced by the ebbs and flows of the economy, the housing market, as well as the Federal Reserve's decisions on short-term interest rates. When the Federal Reserve lowers the federal funds rate, mortgage interest rates tend to drop too. When the Fed increases rates, they tend to rise.
Even global events — like a pandemic or a major geopolitical shift — can send ripples through the mortgage market.
This constant fluctuation is why timing is so important when locking in a mortgage rate. Working closely with your lender and real estate agent can help you seize the right moment to secure a rate that fits your budget.
Related reading
FAQ: Mortgages, rates and getting the best deal on your home loans
Still wondering how a mortgage rate lock works? Browse these frequently asked questions.
How do I know if my interest rate is locked?
Your loan estimate should state if your mortgage rate is locked in, so check there first. However, you may need to speak to your lender to find out how much a rate lock extension costs and any fees that apply. The Consumer Financial Protection Bureau reports that many lenders do not disclose this additional information in your loan estimate, so it's up to you to seek it out.
How do I get out of a mortgage rate lock?
You have a few options if you need to get out of a rate lock. You can withdraw your application if you've found a better lender, ask your current lender if they'll match a lower rate you've found elsewhere or use a float-down option if rates have dropped.
How close to closing can you lock in a mortgage rate?
Some lenders will let you lock in your mortgage interest rate as late as five days before closing and as early as when you submit your mortgage application. If you’re worried about interest rates climbing before you close, this can be a helpful way to calm your nerves.
What happens to my mortgage if I die?
Your mortgage is treated differently from other debt that’s typically settled through your estate. Most mortgages aren’t transferable, which means the home must be paid off in full to transfer the property title. Learn more in our guide on what happens to your mortgage after you die.
About our writer
Cassidy Horton is a finance writer who specializes in banking, insurance, lending and paying down debt. Her expertise has been featured in NerdWallet, Forbes Advisor, MarketWatch, CNN Underscored, USA Today, Money, The Balance and Consumer Affairs, among other top financial publications. Cassidy first became interested in personal finance after paying off $18,000 in debt in 10 months of graduation with an MBA. Today, she's committed to empowering people to stand up and take charge of their financial futures.
Article edited by Kelly Suzan Waggoner