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Mortgage Rate Lock: A Guide To Protect You From Rate Fluctuations

February 22, 2024 7-minute read

Author: Victoria Araj

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Mortgage interest rates can fluctuate rapidly over time – they move up and down from day to day and even hour to hour.

Even minor changes to mortgage rates can impact the amount you pay when you refinance or close on a home loan. A mortgage rate lock protects you from climbing interest rates and freezes your rate.

Let’s look at how a mortgage rate lock works, why you should lock your mortgage rate and when is the best time to lock in the rate on your loan.

What Is A Mortgage Rate Lock?

A mortgage rate lock, also known as rate protection, keeps your interest rate from rising between applying for a mortgage and closing on your new loan. A rate lock allows borrowers to get the best mortgage rate possible while buying a home or refinancing. 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. A float-down option allows you to take advantage of an interest rate decrease during your rate lock period.

For a home buyer who wants a 30-year conventional, Department of Veterans Affairs (VA) or Federal Housing Administration (FHA) loan, Rocket Mortgage® offers RateShield®, which gives you up to 90 days to shop for a home with a locked interest rate.1 If rates fall during that period, you have one opportunity to lower your rate. If they go up, you can keep the rate you locked in at the start.

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How Long Can You Lock In A Mortgage Rate?

Your rate will stay locked for a specified period of time. The lock period will vary based on where you live, the loan type, the loan terms and the mortgage lender you choose. Most rate locks are typically available for 15 – 60 days. If the rate lock expires before your loan closes, you may have the option to pay a fee to extend the lock period. Otherwise, you’ll get the interest rate that’s available before closing.

If things change concerning your mortgage application or financial situation, your lender may void your rate lock. Since factors like income and credit influence your interest rate, changes to your situation may mean you’re no longer eligible for the original offered rate. Opening a new line of credit while you’re getting a mortgage, for example, may change your debt-to-income ratio (DTI) or credit score. Your lender will need to reevaluate your eligibility for the loan and the offered interest rate.

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When Can You Lock In A Mortgage Rate?

You can lock in your rate from the moment you receive initial loan approval to 5 days before closing. Some lenders may even lock your rate when they send the Loan Estimate. However, your rate lock has an expiration date. Once the lock period ends, your interest rate will increase or decrease even if you haven’t completed your refinance or home purchase.

That’s why it’s essential to get the timing on your mortgage rate lock just right to secure a lower interest rate and APR for your new mortgage.

Unlike most rate lock options, RateShield® lets you lock your rate for up to 90 days while you shop for a home and offers a one-time opportunity to lower your rate if interest rates fall while you shop for a home.

To know whether you should lock your rate right away, you may want to research how rates have been moving. If rates have been rising, it may be best to lock your rate as soon as your mortgage or refinance is approved. If rates are dropping, floating your rate (in other words, not locking your rate) may pay off.

Just keep in mind that no one can predict what rates will do. Floating your rate can be risky. Even a small increase in interest rates can cost you thousands of dollars over the life of your loan.

Should You Lock Your Mortgage Rate?

Borrowers often wonder whether they should lock their mortgage rate. Locking it in is a smart choice if you’re happy with your rate when you get approved. It's best to lock your rate when you’re comfortable with the amount of your monthly mortgage payment.

While locking your rate can save you money over time, you should also check with your lender about any charges associated with a rate lock. Some banks and financial institutions charge rate lock fees, depending on the type of mortgage you’re using. You can pay this fee upfront or include it in your closing costs.

How To Lock In A Mortgage Rate

In a rising rate environment, it’s important to lock your rate to take advantage of optimal interest rates. You can use Rocket Mortgage to lock your rate online. Here’s how it works:

  1. Create an account: Once you decide to buy or refinance your home, talk to your loan officer. They’ll ask a few questions about your income, debt and assets. Create a Rocket Account if you don’t already have one.
  2. Research recommended mortgage solutions: Research current interest rates and estimate monthly mortgage payments using a mortgage calculator. Customize the numbers to fit your budget.
  3. Wait for mortgage approval: When you’re ready to get a new mortgage, you’ll need to submit an application for the type of financing you want. Make sure you include all required documentation and personal information.
  4. Lock in your interest rate online: Once you get lender approval and are happy with your rate, lock it in, sit back and wait for your closing date.

Rocket Mortgage is available 24/7. You can lock your rate whenever you want.

Why Do Mortgage Rates Change?

The financial markets influence mortgage interest rates. Let’s look at some of the variables that determine interest rates.

Economic Changes

When the economy does well, interest rates tend to rise. But when the economy slows, market rates typically drop, with the hope that lower interest rates will spur growth.

Federal Funds Rate

The federal funds rate is the rate at which banks and other financial institutions borrow money. When the Federal Reserve increases or decreases the federal funds rate, it influences mortgage interest rates. The Federal Reserve may manipulate the federal funds rate to keep inflation in check. The Federal Reserve’s decision will influence the direction of interest rates, especially short-term rates, such as those used for credit cards and adjustable-rate mortgages (ARMs).

Recently, the Federal Reserve carried out a fed funds rate hike to help lower inflation. Because inflation affects mortgage rates, a rate hike typically results in higher rates, making it more expensive to buy a home.

Mortgage Demand

Supply and demand also play a role in the rise and fall of mortgage rates. Interest rates tend to climb if there’s a strong demand for homes. If demand slumps, rates can drop to help encourage home buyer demand.

Mortgage-Backed Securities

Mortgages are often bundled and sold to investors on the bond market as mortgage-backed securities. In return for buying the securities, investors are paid each month when homeowners make their mortgage payments. The price of a mortgage-backed security is based on the interest rate of its underlying mortgages.

Mortgage Interest Rate Lock FAQs

Let’s look at a few frequently asked questions about when and why you should secure your mortgage with a rate lock.

How much does it cost to lock in a mortgage rate?

Usually, you won’t see a fee with an initial rate lock. The fee is typically baked into the rate. You may, however, pay extra to extend your rate lock or lock it again once the initial period expires.

Lenders may charge a fee to extend or relock your rate in the form of mortgage points, which would slightly increase the rate. Rate lock policies on fees, initial time periods and extensions can vary between financial institutions and loan type. Ask your lender for the specifics around locking your rate.

Does my loan type affect the mortgage rate lock?

The type of mortgage may affect the specifics around your mortgage rate lock, including whether they’re eligible for a lock and whether you can extend the lock. Deciding when to lock in your interest rate is part of the mortgage process, regardless of the loan. Although, your loan type can impact other aspects of your mortgage.

How long is a mortgage rate lock good for?

Some mortgage lenders offer long-term mortgage rate locks, including 90-day lock periods. However, rate lock agreements are typically no shorter than 15 days and no longer than 60 days. You may pay a fee if you want a longer rate lock period.

What happens if my mortgage rate lock expires before closing?

If your interest rate lock expires before you close, you have two options: close with the existing mortgage rate or pay for a rate lock extension.

Speak with your lender if you’re concerned about paying rate lock extension fees. They should have a good idea of how long the underwriting process will take and can recommend the best rate lock period for you.

The Bottom Line: Locking In A Mortgage Rate Can Save You Money

Interest rates can fluctuate due to the housing market and demand. But rates are also based on your personal situation, such as your financing type, down payment and loan amount. A rate lock is an opportunity to refinance or secure a mortgage with an affordable monthly payment. Rate locks can provide protection, peace of mind and some control over the refinancing or home buying process.

Want to get your rate locked in as soon as possible? Start your application with Rocket Mortgage today.

1 RateShield Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days. Please contact your Home Loan Expert for additional information. This offer is only valid on certain 30-year purchase loans. Additional conditions and exclusions may apply.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.