Are long-term mortgage rate locks worth it?
When you buy a home, you’ll likely close within 60 days or less after signing your purchase contract. So for most home buyers, a 60-day rate lock should be long enough. Depending on how fast your lender moves, even a 30- or 45-day lock could be plenty.
But what happens if your loan closing takes longer than expected? Is it worth it to pay a bigger rate lock fee to get a longer rate lock?
In this article (Skip to…)
- About rate locks
- How long can you lock?
- Rate lock costs
- Rate lock extensions
- Float down provisions
- New construction rates
- How to lock a rate
What it means to lock a mortgage rate
When you lock a mortgage rate, it means you and your lender have reached an agreement on your loan’s interest rate and discount points, and the lender has put its commitment in writing.
Rate locks protect you from an increase in mortgage rates between today and your closing date. They offer peace of mind that even if mortgage rates rise, the bank can’t assign you the new, higher rate.
But the mortgage rate lock works both ways: If mortgage rates dip, the bank won’t assign you the new, lower rate.
How long can you lock in a mortgage rate?
The most common rate lock period is 30 days, but many home buyers are requesting longer rate locks from lenders.
Rate lock periods of 45 or 60 days have become more common, partly because home loans took longer to close during the pandemic.
It’s possible to lock in a rate for even longer — 120 or 180 days, for example — if you know your closing is a long way away. But longer rate locks require higher rate lock fees. And, unless you’re getting a new construction loan, it’s unlikely your mortgage loan will need more than two months to close.
It’s also possible to get a rate lock extended if something unexpected delays your home buying process by days or weeks.
Longer mortgage rate locks cost more
You probably won’t see a short-term rate lock fee listed in your closing costs because it’s normally incorporated into the lender’s fees. But locking in your rate for an extended time can cost you more at closing.
That’s why it’s important to get a realistic estimate on turnaround times from your lender and make sure you’re not paying to lock your rate longer than need be.
Here’s a real-world example of how one mortgage lender’s pricing varies for different rate lock lengths on a 30-year fixed-rate mortgage:
|Lock (Days)||Fee||Cost Per $100,000 Loan Amount|
Source: The Wood Group at Fairway Mortgage, “Rate Lock Guide”
In this scenario, a mortgage borrower would pay $90 per $100,000 borrowed for a 30-day rate lock. For a home loan of $300,000 this would equal $270 — not a big deal compared to the overall cost of buying the home.
For a 60-day lock, the fee starts to look more noticeable. It would be $270 per $100,000 borrowed — or $810 for a $300,000 home purchase loan.
These fees continue to rise if you lock in your rate for a longer period of time.
Why does a long rate lock cost more?
The longer you lock your interest rate, the more chance there is that rates will rise before your loan closes. So when you have an extended rate lock, the lender is taking on some risk by guaranteeing you a potentially lower rate than you’d get otherwise. That’s why it costs more the longer you lock your mortgage rate.
How much does it cost to extend a rate lock?
If your loan didn’t close on time and your rate lock expires, you can re-lock your rate with a rate lock extension.
Continuing the example from the lender above, here’s what a rate lock extension might cost:
|Extension (Days)||Fee||Cost Per $100,000 Loan Amount|
Depending on your loan size, a rate lock extension could add more than $1,000 to your closing costs.
It’s a good idea to confirm your lender’s fee schedule before locking in or extending your rate, especially if you’re a first-time home buyer who’s new to the process.
Some lenders don’t charge for the initial rate lock but will charge for an extension; others may offer one free rate-lock extension.
Are extended rate locks worth the money?
To know whether an extended mortgage rate lock is worth the money, you’d need to know a little bit about the future of mortgage interest rates.
After all, an extended rate lock is really just a hedge against the future. If rates rise, your locked-in rate can save you a lot of money.
So, what’s the likelihood of mortgage rates soaring between now and the 45 to 60 days it will take until your home is ready for closing?
Mortgage rates change daily, so you’ll have to look at current mortgage rates and compare them to recent rates to identify trends. Even that won’t tell you, with certainty, which direction rates will go in the next month.
Home buyers — and homeowners who are refinancing — should also pay attention to the Federal Reserve. The Fed’s policies affect mortgage rates.
If you, your loan officer, or your real estate agent think a mortgage rate increase is imminent, an extended rate lock on your new loan may be worthwhile.
What is a float-down lock?
Rate locks protect home buyers from higher interest rates, but they can also prevent home buyers from saving money if rates fall.
If you think rates might fall before you close but you want some protection in case they rise, ask your lender about its float-down lock.
With a float-down option in place, your locked-in rate could drop if market rates fall. But your locked-in rate would stay the same if market rates increased.
Not all lenders offer a float-down option, and exercising this option might cost 0.5% to 1% of your loan upfront. For a $300,000 loan, that would be $1,500 to $3,000.
This could be money well spent if your new rate shaves 0.25% to 0.5% from your loan. For example, paying an extra $1,500 to lower your rate from 6% to 5.75% could save $38 a month — and $13,680 over the life of a 30-year loan.
To run your own, specific loan cost scenario, use a mortgage calculator.
When can you lock in an interest rate on new construction?
Most home buyers can get by with 45- or 60-day rate locks, but what if you’re buying new construction and your new home won’t be ready for months — or even a year? What do you do about your mortgage rate?
Most new construction mortgage lenders will allow you to lock today’s mortgage rates for periods of 180 days, 270 days, 360 days, or longer.
But should you lock in a rate so far in advance?
Timing your new construction rate lock
There have been times in recent history when locking in a 360-day rate would have paid off. For example, a home builder in August of 2021 could have locked in a 30-year fixed rate of 3 percent. Eleven months later, in July of 2022, that same home builder may pay 6% over a 30-year loan term.
Even if that extended rate lock cost $5,000, the extra cost would have paid off many times over the life of the loan.
That said, it’s very difficult to predict what will happen with mortgage rates in the future.
There’s always a possibility that rates will rise. So if you can afford the home you want now and have a chance to lock a rate, it may be wise to do so. But your lender’s policies and rate lock fees will play into the decision.
You should work closely with your loan officer to analyze current interest rates, how the market is moving, and your own home buying budget. Together, the two of you will decide when it makes sense to lock a new construction mortgage rate.
How do you lock in your mortgage rate?
Policies vary by lender, but you should be able to lock in your rate before your loan application completes the full underwriting process.
After submitting your mortgage application and all required documents, ask your loan officer about locking in a rate.
Keep in mind your locked-in rate could change if underwriters discover new information in your personal finances — for example, if your credit score dropped or if you needed to make a smaller down payment.
Tips to lock in a lower interest rate
Mortgage and refinance rates are influenced by broader market forces, but your personal finances also affect the rate you’ll pay.
To qualify for a lower rate:
- Pay down debts: Keeping your credit card and other debt under control can increase your credit score and help you qualify for a lower interest rate
- Make a bigger down payment: Larger-than-required down payments, especially on conventional loans, can help you score a better rate
- Try to keep steady employment: Lenders check your employment history to make sure you earn enough income to afford the loan. Avoid unnecessary job hopping, if possible, for a couple years before applying for your loan
- Get the right loan type: FHA loans work well for borrowers with lower credit scores; VA loans offer great rates to veterans with no money down; borrowers with excellent credit and a large down payment can save with conventional loans. Finding your best match can lower your rate
It helps a lot to shop around. Even for the same borrower at the same time, rates can vary by lender.
Get personalized quotes from at least three lenders to increase the chances of locking in a great deal.
Mortgage rate lock FAQs
Yes, it’s possible to lock in a rate for six months. But most home buyers do not need more than two months to close on a home loan. For most buyers, the added cost of a six-month interest rate lock would not be worthwhile.
Your locked-in rate will stay the same even if market rates fall — unless your lender has a float-down option. If you float down your rate, expect to pay an extra fee.
Yes, you can back out of a loan any time before it closes. However, your lender may still charge an application fee, especially if it’s already put a lot of work into your loan.
No, your locked-in rate already reflects discount points — which is money borrowers pay upfront to buy down the loan’s rate. To buy more discount points, you’d need to re-lock a new interest rate.
What are today’s mortgage rates?
After setting record lows during the pandemic, average mortgage rates are once again near historic norms. Wider market forces set the context for rates today, but your rate will be unique to you.
To estimate your rate and loan costs, apply for a mortgage pre-approval.
Not only will a pre-approval show the rate you could likely lock in, it’ll also show home sellers you’re a serious buyer.