Key Takeaways
- Rate locks protect you from rate increases for 15-60 days.
- Free locks last 15-30 days, longer locks cost additional fees.
- Lock when you're confident in your timeline and rate.
- Longer rate locks might increase your interest rate slightly.
Article Summary
A mortgage rate lock is a mortgage lender's commitment to honor a quoted mortgage rate through closing for a home buyer.
Mortgage Rate Lock: Explained in Plain English
A mortgage rate lock is a price agreement between a mortgage lender and a home buyer with three parts: a mortgage rate, a cost, and a time frame.
- The mortgage rate is the interest rate for the buyer’s mortgage.
- The cost is the number of discount points the buyer will pay at closing.
- The time frame is how many days the agreement is valid.
When a home buyer asks for a rate lock, it signals their commitment to the mortgage lender and their approval to proceed with mortgage underwriting. The rate lock guarantees the mortgage terms for a specific number of days, unless there are material changes in the application related to credit score, employment, or address.
Until a mortgage is rate-locked, its interest rate is subject to change. Once locked, the rate lock is honored, regardless of market fluctuations or current mortgage rates.
Home buyers can request mortgage rate locks in 15-day increments.
The typical quoted rates, like those shown on the Homebuyer.com mortgage rates page, assume 30-day mortgage rate locks. Longer locks may increase rates.
Here is how the number of days in a mortgage rate lock can affect cost. This chart is based on sample mortgage pricing. Today's mortgage rates may be different from the chart below.
Cost Summary: Mortgage Rate Lock Lengths
| Rate Lock Length | Estimated Cost Impact |
|---|---|
| 15-day | 5 basis point credit |
| 30-day | Standard rate |
| 45-day | 7 basis points |
| 60-day | 13 basis points |
| 90-day | 25 basis points + extra fees |
Home buyers may also have the option to select mortgage rate locks longer than 90 days, though costs could vary based on lender policies.
When deciding on a rate lock length, choose a time frame that covers the expected period until your closing date. While rate locks can sometimes be extended for a fee, the cost of extending may vary and could become significant depending on the circumstances.
Mortgage Rate Lock: A Real World Example
Imagine a first-time home buyer who gets their offer for a home accepted. Their buyer's agent smartly negotiates for a closing date in 30 days, allowing the buyer to secure a 30-day mortgage rate lock from the lender.
In the following weeks, the market for mortgage-backed securities deteriorates, causing a sudden and sharp increase in U.S. mortgage rates. Since the buyer's rate was locked, they are shielded from the increase.
At closing, the buyer feels fortunate for securing a rate below current market rates and for choosing a 30-day rate lock, which was less expensive than a 45-day lock. Their timing and strategy worked out well.
Common Questions About Mortgage Rate Lock
Get answers to frequently asked questions about mortgage rate locks, including costs, extensions, and what happens if rates change.
