Should I Lock In My Mortgage Rate Today?
Victoria Araj4-minute read
July 12, 2023
The recent ups and downs of mortgage interest rates can leave you wondering when a good time would be to lock in your mortgage rate, especially with interest rates predicted to continue to rise. After all, you don’t want to be stuck with a higher interest rate if it could be avoided.
However, what if rates keep rising, and you miss your chance to lock in a lower rate? These are all important points to think about when considering a mortgage rate lock.
This article will take a closer look at the pros and cons for borrowers, as well as when the best time to lock in your rate may be.
A Quick Review Of The Mortgage Rate Lock
A mortgage rate lock, sometimes called rate protection, allows you to keep the interest rate on your home loan from rising between the time you apply for a mortgage loan and the time you close.
If interest rates rise after you’ve locked in your rate, you’ll be able to stick with the lower rate. On the flip side, if you lock in your rate and then interest rates fall, you could be stuck with a higher rate.
As a home buyer or homeowner who is refinancing, obtaining the best rate on your mortgage loan is likely a top priority. With a better interest rate, you could save yourself thousands of dollars over the course of the loan. So it’s natural to ask yourself if you should lock your rate when presented with a good deal.
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When Should I Lock In My Mortgage Rate?
You can make your decision on an interest rate lock when you’re approved for a mortgage. At that point, you can lock in your rate or wait until your closing date to do so.
As with all financial decisions, there are pros and cons to locking in your mortgage rate immediately. Here’s what you should consider before doing so.
Pros Of Locking Your Mortgage Rate Today
Locking in your interest rate can be tempting for the following reasons:
- Mortgage rates could rise after you lock. The threat of a higher mortgage interest rate can be a strong reason to lock in a rate that you’re comfortable with.
- You’ll have peace of mind. You won’t have to worry about interest rates rising to create an unaffordable monthly.
If you’re presented with a reasonable mortgage rate that you’re happy with, locking it in can put your mind at rest as you prepare for the closing process.
Cons Of Locking Your Mortgage Rate Today
Some downsides to locking in your rate right away include the following:
- Interest rates may fall after you lock in. You could miss out on the chance to score an even lower interest rate.
- Letting the lock period expire has consequences. If you lock in a mortgage rate but ultimately allow it to expire, the lender might charge you hundreds of dollars.
The big disadvantage is the potential for a missed opportunity on a lower mortgage rate.
What To Do If You Choose Not To Lock In Your Mortgage Rate Today
If you decide not to lock in your rate right away, here are some actions you can take to ensure you don’t miss out on a good interest rate.
Communicate With Your Mortgage Lender
First, talk with your lender about the decision to hold off. Ask your lender what costs are associated with locking in a mortgage rate. Make sure that you’re comfortable with the cost and how your APR may be affected.
Also, ask how long a lock will last. Rate locks often last 15 – 60 days, but the exact time frame can vary based on the lender. You should choose a time frame that’s long enough to move your loan through the underwriting process.
Finally, ask your lender how the process to lock in your rate works so you’ll be prepared when you’re ready.
Watch The Markets
Researching and recognizing the best mortgage rates can be tough, but it can also help you decide when the right moment is to lock in your rate. You can check in regularly with Rocket Mortgage® to see the current interest rates.
Remember that no one can predict the future. With the volatility and fluctuations of the markets, it can be difficult to pick out the lowest point for mortgage rates. As long as you lock in an affordable rate that you’re comfortable with, it can be worth watching the markets.
It’s worth noting that, at the end of 2021, the Federal Reserve foreshadowed up to three increases in the federal funds rate this year. The first of these Fed rate hikes occurred in March – which was the first time the Fed has raised rates since 2018 – and as many as six more increases are now predicted for 2022.
Combined with plans to back off purchases of agency mortgage-backed securities, these increases create an environment where mortgage rates are likely to continue rising in the future.
So if you need to purchase or refinance, it might be a good idea to exercise a mortgage rate lock and secure your interest rate sooner rather than later.
What If Interest Rates Fall After You’ve Locked In?
What if you lock in your rate, but falling interest rates lead you to regret the decision? Is it possible to tap into a lower interest rate?
One way to enjoy a lower interest rate than your locked rate is through float-down options. Even if you’ve locked in your rate, a float-down option can allow you to take advantage of the lower interest rates. You can ask your lender about the costs of floating down and decide if it’s worth it for you. Not all lenders offer a float-down option, and some may only offer it given specific market conditions.
A different way to lock in a lower interest rate is to reapply for your mortgage. However, this can be a more cumbersome home-buying process than the float-down option.
The Bottom Line: You Have Options For Your Interest Rate
The right interest rate can make all the difference in your budget. Luckily, you have some control over your interest rate by locking it in when it works for your budget.
If you want to get your interest rate even lower, consider other options like shortening your loan term or buying prepaid mortgage points.
Ready to explore your interest rate options? Apply for a mortgage or refinance online to see what’s available for you.
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