Mortgage Rate Lock

What is a mortgage rate lock?

Updated March 14, 2022

Because real-estate transactions take time to complete and interest rates fluctuate swiftly, mortgage lenders offer borrowers the opportunity to lock in rates from the time of the purchase offer until the closing of the deal.

The rates typically are locked in for 30, 45 or 60 days, and borrowers are charged a fee for the option that is keyed to the amount of the loan and the length of the lock-in. The shorter the lock-in period, the less it costs the borrower because there is less risk to the lender.

A mortgage rate lock guarantees that you'll close at a certain mortgage interest rate, but there are time restrictions involved. Credit: Cytonn Photography/Unsplash

Interest rates change daily, even hourly, so lock-in rates offer borrowers security and stability during escalations and can potentially save them tens of thousands of dollars over the course of the loan.

If, however, interest rates drop during the lock-in period, the borrower cannot get the new, lower rates unless the lock-in has a float-down provision that allows such an adjustment or the lender lets the borrower withdraw from the lock-in. There’s generally an additional cost for a float-down provision.

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There’s another drawback: If the deal takes longer than the length of the lock-in, the rate is not guaranteed to continue beyond the specified timeframe unless the lender grants an extension and the borrower agrees to pay extra for it. If there’s not an extension, the borrower has to pay the prevailing, higher interest rate.

To further protect borrowers, some lenders include a cap in the lock-in that sets a range of parameters that rates can rise.

The lock-in also requires that no changes be made to the mortgage application to remain in effect. If the borrower’s credit score changes, if the property appraisal is higher or lower than expected, if the type of loan or the down payment amount is changed, the interest rate still can change during the lock-in period.

Lock-ins, which are also available for refinancing, generally are recommended by experts.