Understanding Mortgage Rate Locks

When it comes to getting a mortgage loan, one important term you should be familiar with is “rate lock” or “lock-in.” A rate lock means that your interest rate remains fixed from the time you receive the offer until the closing of your loan as long as you meet certain conditions. There are no changes to your application.


What is a Rate Lock?

Mortgage interest rates can fluctuate frequently, even daily or hourly. However, if your rate is locked, it guarantees that your interest rate will not change during the specified time frame leading up to the closing. Typically, rate locks are available for 30, 45, or 60 days, and sometimes even longer. If your rate is not locked, it is susceptible to change at any moment.


Potential Downsides of Rate Locks:

While rate locks provide stability, there are potential downsides to consider. Extending a rate lock can be costly if your transaction requires more time. Additionally, if interest rates drop after you receive your loan offer, a rate lock could prevent you from taking advantage of a lower rate.


Rate Locks and Loan Estimate:

Some lenders may include a rate lock as part of their Loan Estimate, but not all do. You can check the top of page 1 of your Loan Estimate to see if your rate is locked and for how long. Even if your rate is locked, it can still change if there are modifications to your application, such as changes to the loan amount, credit score, or verified income.

Factors that Can Influence a Locked Rate:

Here are some common reasons why your locked interest rate might still change:


  1. You decide to change the type of loan or adjust the down payment amount.
  2. The home appraisal comes in higher or lower than expected.
  3. Your credit score changes due to new loan applications, missed payments, or other factors.
  4. Your lender cannot verify additional sources of income like overtime or bonuses.

Clarifying Rate Lock Policies:

It’s important to note that rate lock policies can vary among lenders. To avoid surprises, it’s wise to ask your lender the following questions:


  1. What does it mean if I lock my rate today?
  2. What is the time frame for this rate lock, as stated in the Loan Estimate?
  3. Can I opt for a shorter or longer rate lock period, and at what cost?
  4. What happens if my closing is delayed and the rate lock expires?
  5. Are there any conditions that could still lead to a change in my locked rate?
  6. What are the implications if interest rates decrease after I lock my rate?

Ensuring Adequate Rate Lock Coverage:

If you decide to proceed with a rate lock, ensure that the duration of the agreement covers the time until your loan closes. If you have concerns about the short lock period, discuss the possibility of switching to a more extended rate lock period with your lender.

Understanding the Loan Estimate:

Remember, while your Loan Estimate will indicate whether your rate is locked, it won’t provide detailed information about the cost of extending the rate lock or different time frames. Feel free to inquire about these specifics to understand your mortgage agreement comprehensively.

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