When you hear mortgage brokers and bankers advertising loans, you might occasionally hear them talking about a rate lock. In the real estate world, locking down a steady rate can be a great way to save money on housing interest. Or, it could end up being more of a pain than what it’s worth.
What’s A Mortgage Rate Lock?
A mortgage rate lock is a lending perk. It allows you to lock down your mortgage interest rate at the time of your closing, giving borrowers a more predictable payment schedule than if their rate fluctuated.
With a rate lock, the lender guarantees the mortgage rate and payments for a set amount of time. During a typical underwriting process, the rates of your mortgage can fluctuate dramatically. Locking down your rate means that you get to save thousands of dollars throughout your loan potentially.
What's the Best Day of the Week to Lock In Your Mortgage Rate?
Monday is the best day to lock in your mortgage rate. This is because mortgage rates tend to be relatively stable on Mondays. On the other hand, the worst day to get a rate lock is Wednesday as that's when volatility is highest.
How Long Does A Mortgage Rate Lock Last?
The mortgage rate lock will usually last anywhere from 30, 60, to 90 days or more. The ideal lock starts from the moment you get approved for a loan, to the moment that you close. You should choose a lock period that gives you plenty of cushioning.
Once you’re closed, the mortgage terms are set in stone. From there, you know exactly what to expect.
Does A Mortgage Rate Lock Always Save You Money?
Not necessarily. It locks in your rate but doesn’t always guarantee that the rate you lock in will be the lowest on you could get. If you make the mistake of locking down a rate that’s higher than average, a rate lock could easily cost you thousands of dollars.
Mortgage rate locks can have three different outcomes:
- The rate stays the same. You don’t gain or lose money if this happens. It just stays the same, regardless of your lock status. This is a very rare occurrence.
- The mortgage rates suddenly shoot up. If you locked your rate earlier, this is the best possible outcome. In this case, you save a lot of money on interest by locking down a rate in advance.
- The mortgage rate goes down. This is the worst-case scenario because it means you’re locked into a higher rate.
If You Get A High Mortgage Rate Locked Down, Is There Any Way To Combat It?
Though not all mortgage lenders offer it, it’s possible to opt for a one-time “float down” clause. This gives you the option to lower your rate once and only once. Since this option can potentially save you thousands of dollars, you should expect to pay an additional fee.
If you don’t get the option of a float-down choice, you might have to pay the higher rate. With that said, changing the terms of the loan can potentially lead to a rate lock cancelation.
When Can A Rate Lock Get Cancelled?
Aside from the float-down rule that you can opt into, there aren’t many times when a mortgage rate lock gets canceled. Of course, if the period of time where the lock is in place expires, the rate lock gets lifted, and your rate can vary.
The only time you’ll hear of a mortgage rate lock being forcibly canceled by a lender is if they discover that you didn’t tell the truth about your finances during an application. Should this happen, your application will be considered to be “in bad faith.” This can lead to the rate lock being canceled as well as your approval being revoked.
In very rare cases, a rate lock may also get canceled if your lender decides to change the terms of the loan. So if you suddenly decide to opt for a 15-year mortgage instead of a 30-year mortgage, you might also see your rate lock vanish.
Should You Get A Rate Lock?
If you're wondering if you should get a mortgage rate lock or if today is the best day to do it, the fact of the matter is that it all depends on what your mortgage rates are and what the payments would look like. Here’s what you should know:
- If you’re comfortable with the rate and payment, you should probably try to lock down that mortgage. This is the easiest way to guarantee a reasonable monthly payment.
- Ask your lender if you’re in a market prone to spike. If your lender says that fluctuations are substantial and that you are at high risk of having a rate spike, you probably should listen to them.
- You should probably go for it if you are offered a rate lock for a reasonable monthly payment, plus a float-down option. In most cases, you really have nothing to lose by getting this option. It can only really help you.
- Mortgage Rate lock benefits almost always outweigh the risks. There’s really no reason to avoid it.
- If you don’t lock in your rate, you could end up having to furnish a larger down payment if you incur a rate spike. This is one of the most important things to consider. If a high down payment could put you out of a house purchase, a rate lock is almost always necessary.
You can also take a look at various rate lock advisory sites to determine if you should lock in your mortgage rate today.
How Much Does A Mortgage Rate Lock Cost?
It varies from lender to lender. Many lenders will offer them for free as a way to promote their services. If your lender isn’t currently offering freebies, then the rate lock price can vary. Some lenders are now offering it at a set fee, but most will charge a small percentage of the loan.
Getting a mortgage rate lock is a smart idea, especially if you are worried about being unable to afford a higher down payment. Of course, the details of your lock are going to be what makes or breaks it. If you’re not sure what you should look for in a rate lock, the best thing you can do is as a real estate agent or a finance professional what they think.