Should I Lock In My Mortgage Rate Today?

If you’re in the market to buy a house, one of your first considerations might be about the current state of mortgage interest rates. Your mortgage rate determines how much you’ll pay in interest over the course of the loan term and your monthly payment amount. If interest rates are low, you might consider locking in the mortgage rate.

But how do you know when to lock in a rate? Should you lock in your mortgage rate today – or wait? Asking these important questions is crucial when determining whether you, as a borrower, can pay off a home loan based on current mortgage interest rates.

Mortgage Rate Lock: An Overview

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 on the home purchase.

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.

If you’re thinking about refinancing, obtaining the best rate on your new mortgage is likely a top priority. With a better interest rate, you could save thousands of dollars over the course of the loan. So, it’s natural to ask yourself if you should lock your rate – especially if interest rates are lower now than when you initially took out your mortgage.

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 5 days before your closing date.

As with all financial decisions, there are pros and cons to locking in your mortgage rate immediately. Let’s take a look at the factors you may want to 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 possibility that mortgage interest rates could continue to rise 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 payment.

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.

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 on locking in a mortgage rate. Ask your lender what costs are associated with locking in a rate, like an upfront rate lock fee or a fee to extend your rate lock if the initial period expires. Make sure that you’re comfortable with the costs and how your annual percentage rate (APR) may be affected.

You might also want to 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 to take that step.

Monitor Current Mortgage Rates

Researching and recognizing the best mortgage rates can be tough, but it can also help you decide when it’s the right moment to lock in your rate. You can check in regularly with Rocket Mortgage^® to see the current interest rates.

You might also want to monitor news around the Federal Reserve (the Fed). The Fed is the U.S. central banking system that’s responsible for managing the federal funds rate, which is the interest rate that banks and other depository institutions use when borrowing money from and lending money to each other.

While the Fed doesn’t establish mortgage rates, its handling of the federal funds rate affects mortgage lenders, which, in turn, affects mortgage interest rates. Keeping an eye on the federal funds rate and whether there’s a Fed rate hike can help you decide whether it’s the right time to lock in your rate.

Improve Your Qualifying Factors

If interest rates are high, but you’re ready to buy a new home, improving the personal factors that help you qualify for a mortgage can help you secure the lowest rate possible. For example, you might want to consider ways to raise your credit score or lower your debt-to-income ratio (DTI).

Your lender wants to be assured that you’re a responsible borrower. By strengthening the factors on your loan application, you might have the opportunity to get an even lower rate, and you can lock in this rate.

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 rate. 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 more cumbersome for home buyers 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 you.

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? Start an application to see what’s available for you today.