Mortgage Rate Lock: A Guide To Protect You From Rate Fluctuations (2024)

FAQs

What is the downside of a rate lock to the borrower? ›

If your rate is not locked, it can change at any time. There can be a downside to a rate lock. It may be expensive to extend if your transaction needs more time. And, a rate lock may lock you out of a lower interest rate if rates fall after you get your loan offer.

A mortgage rate lock does just that: locks in your mortgage rate so that it won't change for a certain period. 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.

Monday is the best day to lock-in mortgage rates; Wednesdays are risky. Mortgage rates are in constant flux, even changing multiple times a day.

It's generally a good idea to lock in your mortgage rate with your lender of choice once you've gone under contract on a home, since there's no way to definitively know which direction interest rates are headed. That way, your monthly payments won't go up if rates rise during the closing process.

If interest rates go up after you've locked in your rate, you get to keep the lower rate. On the other hand, if you lock your rate and interest rates fall, you can't take advantage of the lower rate unless your rate lock includes a float-down option.

Generally, once you've locked in a mortgage rate, the terms are fixed and usually cannot be renegotiated. However, some lenders offer a float down option, allowing you to negotiate mortgage rates if market conditions shift favorably during the rate lock-in period.

Some borrowers behave as if only the lender is committed, by jumping to a new lender when market rates decline, and starting the process again. Lenders can't prevent this "lock-jumping", but they can and do refuse to accept requests to drop the rate from borrowers who have locked.

A mortgage rate lock extension fee is a charge borrowers pay to retain the interest rate they were initially quoted after a specific lock period expires. A lock extension fee can cost a few hundred or thousand of dollars, depending on the lender's policy, the reason for the extension and other factors.

Rate lock extension fees vary based on the lender and loan terms. Typically, the fee is a percentage of the loan amount or a set fee per day or week of the extension, ranging from around 0.25% to 0.375% of the loan amount. Some lenders may charge a flat fee, such as $500 per week.

History shows that Monday is the calmest day for mortgages. It's because there isn't as much news reported about the markets at the beginning of the week compared to the end of the week. Aiming to lock-in your mortgage rate on a Monday is your best bet to get a calm rate compared to other days of the week.

Will mortgage rates ever be 3 again? ›

It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.

So if you're on the fence about buying or refinancing a home this winter, know that January and February bring some of the lowest mortgage rates of the year.

Answer: You are free to withdraw your application and break your lock at any time. There is no fee for doing so.

Will we see lower mortgage rates in 2024? Most housing market experts predict rates will end the year between 6% and 6.5%.

One of the significant drawbacks of adjustable-rate mortgages is the potential for the monthly mortgage payment to increase. As the interest rate adjusts, the monthly payment changes accordingly.

Avoid Payment Shock

One of the biggest risks ARM borrowers face when their loan adjusts is payment shock when the monthly mortgage payment rises substantially because of the rate adjustment.

Limitations of a Mortgage Rate Lock Deposit

A rate lock can also be canceled if the borrower's financial circ*mstances change before closing, such as a decline in their credit score or a rise in their debt-to-income ratio.