Should I lock in my mortgage rate today?

Important Legal Disclosure:
Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at https://www.rocketmortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

When you’re applying for a mortgage, one of the most important aspects of the loan is its interest rate. Usually, you get preapproved for a loan well before you’re ready to finalize it. The lender gives you preapproval and a loan quote you can use when shopping for homes, but rates could change while you’re viewing homes and going through the closing process.

Some people choose to lock in their mortgage rate, working with their lender to get a rate guaranteed for a set period, so they have more certainty about how much they’ll pay if they do buy a home and finalize their loan.

This article will break down how rate locks work, what rates look like today, and how to decide if locking in your rate is a good idea.

How does a mortgage rate lock work?

Mortgage rates are constantly changing. When you start applying for a mortgage, your lender will give you a rate quote, but the actual rate you’ll pay isn’t set until you close on the loan. You could get a quote only to find that mortgage rates rise and your actual loan will wind up costing more.

A rate lock is an agreement from your lender to commit to the quoted rate for a period, usually between 15 and 60 days, though extensions are usually possible. Some lenders let you lock your rate for free, while in other cases, especially for longer rate locks, you may pay a small fee.

If you close on the loan during the rate lock period, you’ll get the rate quoted even if market conditions change. Keep in mind that if your credit or finances change, it could still affect your rate.

Example of a mortgage rate lock

Imagine you’re in the process of shopping for homes. You plan to buy a home worth $400,000 and make a down payment of $20,000 (5%). Your lender may approve you for the $380,000 loan at a rate of 6.5%.

Assuming a 30-year term, you’d pay $2,402 in principal and interest each month.

If you decide not to lock in your rate, you might find that rates rise or fall, affecting your monthly payment and the total cost of the loan. Here’s how your payment and the loan’s cost would look based on the rate you wind up with in the end.

You can use the Rocket Mortgage mortgage calculator to see how rate changes would affect the loan you may apply for.

Even a small change in rate can lead to a big increase in costs, so locking in your rate can be a good plan if you think rates may rise.

Why do mortgage rates change often?

Mortgage rates change frequently because the economy and interest rate market are constantly changing. There are many factors that influence rates, including:

• Housing/mortgage demand. More demand can lead to higher rates as lenders don’t need to compete for borrowers.
• Federal Reserve decisions. The Fed sets benchmark interest rates that indirectly influence the interest rates of many other things. For example, raising the Federal Funds rate may, but does not always, cause the rates of mortgages and other loans, as well as savings products, to rise.
• Inflation/unemployment levels. When prices rise quickly, interest rates can also rise or the Fed can increase the Federal Funds rate. On the other hand, if many people are out of work, the Fed may lower its benchmark rate to try to boost the economy. Because the Fed’s benchmark rates may influence other interest rates, it can impact mortgage rates.
• Treasury yields. As bond rates rise, so do mortgage rates as investors demand greater returns from mortgages, which are not as safe as treasuries.
• Government policies. Government loan programs and other policies aimed at the housing market also impact rates.

You can also have some influence on the rate you qualify for. People with good credit and stable finances will tend to get better rates than people with poor credit scores and who struggle to make ends meet.

When should you lock in your mortgage rate?

Usually, borrowers have the option to lock their rate after getting preapproved by the lender, after official approval, or up to a few days before closing. Each lender has its own rules and processes, so check with your lender to see what your options are.

Many predict rates will fall in the near future, but things can be unpredictable. Timing your rate lock is key because rates could rise if you wait.

Why you might lock your rate now

There are a few cases where locking in your rate tends to be a good idea.

• Mortgage rates are unpredictable or trending up. Locking in when rates are rising helps you keep your costs lower. If things are unpredictable, then you can avoid the stress of not knowing what your loan will cost. Rates these days are on a downward trend, so you may consider not locking in your rate.
• You like the rate offered. If you simply like the rate you’re offered, you could lock it so you don’t have to worry about things changing.
• You want to be certain about your loan payment. Locking in your rate means your predicted mortgage payment won’t change. This can be good to do if you’re near the top-end of what you can afford for a monthly payment.
• You’re close to closing. You can lock your rate shortly before closing to avoid the need to extend your rate lock or a sudden surprise shift in rates.

Why you might wait to lock your rate

There are a few situations where waiting to lock in your rate might be the better decision.

• Rates are stable or falling. If rates could go down, locking in a high rate could mean paying more than is necessary. With many people predicting rates to fall in the future, you may consider not locking your rate if you’re buying a home in the near future and want to get a lower payment.
• You’re early in the process of buying a home. Rates can change significantly in just a few months, so you may not want to lock in your rate if you’re early in the process. This is especially true if your lender limits how long you can renew your rate locks for or if they charge for locking in the rate.

What happens if interest rates fall after the lock?

When you lock in your mortgage rate, both you and the lender are committing to the rate on offer. If rates rise, the lender won’t increase your rate, but if rates fall, you usually have to stick to the higher rate you locked in.

In some cases, you can work with your lender to ask them to float your rate down to the lower market rate, but that usually involves paying a fee.

If rates have dropped a lot, you may consider reapplying for the loan. This can take longer, but it lets you get out of your rate lock.

How to lock in your mortgage rate

If you want to lock your rate, the best thing to do is reach out to your lender to ask about the process. Each lender is different, and when and how you can lock your rate may vary.

Usually, your Loan Estimate, which includes your potential mortgage interest rate, will have instructions on how to lock in your rate.

If you’ve locked in the rate and the rate lock is about to expire, make sure to check market rates to see if your rate will rise, fall, or hold steady, and consider whether it’s better to ask for an extension or let the lock expire.

What to do if you’re waiting to lock in your rate

If you’re thinking about locking in your rate, use these tips to avoid missing out on the opportunity to lock in a good deal.

Communicate with your mortgage lender

If there’s a chance you’ll want to lock your rate, it’s important to be proactive and communicate with your lender. Let them know you may want to lock in your interest rate and ask about the process and the times when you’re allowed to ask for a rate lock.

This will leave both you and your lender ready to lock your rate quickly if you find the right opportunity.

Monitor current mortgage rates

Rate locks help you avoid fluctuations in the interest rate market. If you’re waiting to lock things in, keep a close eye on the mortgage market. Rocket Mortgage’s rates update page can be a good resource for this.

Watch the news around Federal Reserve rate decisions and for housing market trends. For example, recent reports about falling levels of buyer urgency mean that the market could be weakening, which can lead to lower rates.

If you see rates fall, that can be a good opportunity to lock your rate.

Improve your qualifying factors

When it comes to determining your mortgage rate, there’s more than just the broader market and economic conditions involved. Your finances also play a big role.

People with higher credit scores, lower debt-to-income ratios, higher down payments, and steadier income tend to have a better chance at landing lower interest rates. If you can take steps to make yourself a more appealing borrower, you may be able to lower your mortgage rate before you lock it in.

The bottom line: You have options for your mortgage rate

Locking in your mortgage rate offers some level of certainty as you go through the homebuying and closing process. If you get a loan offer that you really like or worry that rates could rise, locking in your rate could help you get a good deal.

Keeping a close eye on the mortgage rate market is important for properly timing your rate lock, but there are other ways to reduce your loan interest rate, like boosting your credit score or lowering your debt-to-income ratio.

If you’re ready to buy a home, consider applying for a mortgage with Rocket Mortgage.

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