1. What is a Mortgage Rate Lock?
A mortgage rate lock is a lender's binding guarantee to hold a specific interest rate, APR, and discount point structure for a set duration (typically 30, 45, or 60 days) during loan processing.
A rate lock protects you from market rate fluctuations while your loan goes through underwriting. If market interest rates climb during your lock window, your lender must honor the locked rate.
2. The Risk of Rate Lock Expiration
Rate locks are time-sensitive. If your lock expires before your loan closes due to processing delays, your interest rate will revert to current market pricing unless you pay a lock extension fee.
To avoid expiration, submit all requested underwriting documents (such as tax returns, bank statements, and pay stubs) to your lender immediately, and maintain regular communication with your loan officer.
3. Float-Down Provisions and Pricing Adjustments
If you lock your rate but market interest rates fall significantly before your closing date, ask your lender about a float-down option. A float-down agreement allows you to capture a lower rate.
Float-down agreements typically carry strict guidelines: market rates must drop by a set percentage (such as 0.25%), and the lender may charge a small fee to execute the adjustment.
4. When to Lock Your Interest Rate
Deciding when to lock your rate depends on market conditions and your risk tolerance. If interest rates are rising and you are comfortable with your quoted payment, lock the rate immediately.
If rates are falling or stable, you can float the rate. Floating means you wait to lock your rate closer to your closing date, though this strategy carries risk if market rates spike unexpectedly.