A mortgage rate lock is a lender's commitment to hold a specific interest rate for a defined period, typically 15 to 60 days, regardless of what happens to market rates during that time. Once locked, your rate does not increase if market rates rise. If rates drop after you lock, you are generally committed to the locked rate unless your lender offers a float-down option. Locking makes sense when you have a signed purchase contract and a realistic closing timeline.
How a Rate Lock Works
When you lock your rate, the lender agrees in writing to hold that rate until a specified expiration date. If market rates rise 0.5% during your escrow, you are unaffected. Your rate is fixed at the locked level. If the lock expires before closing, you either need an extension (which usually costs money) or your rate resets to whatever the current market offers. Extensions typically cost 0.125% to 0.25% of the loan amount per week, depending on the lender.
When to Lock Your Rate
Most buyers lock their rate after their offer is accepted and the purchase contract is signed. At that point, you know the property, the purchase price, and you have a target closing date. Locking before you have a signed contract is possible but risks locking too early and burning through your lock period before you find the right home. Locking too late, just days before closing, exposes you to rate movement during the entire escrow period. The standard approach is to lock at the time of full loan application, which typically happens within the first week of a signed contract.
Float-Down Options
Some lenders offer a float-down option that allows you to reset to a lower rate if rates drop significantly after you lock. The threshold is typically 0.25% to 0.5% below your locked rate, and the float-down usually costs an additional fee. It provides some protection on the downside while keeping your upside protection. Whether a float-down is worth the cost depends on the rate environment and how volatile rates have been during your escrow period.
What Happens If Your Lock Expires
If your lock expires before closing, you have two choices: extend the lock at a cost, or let it expire and re-lock at current market rates. If rates have risen, the extension is the better option. If rates have fallen, letting the lock expire and re-locking at the lower rate may make more sense, though some lenders will not allow re-locking until after the expiration. The best protection against lock expiration is a realistic closing timeline from the start and early resolution of any underwriting conditions that could cause delays.
Rate locks matter most in a volatile rate environment. When rates are moving 0.25% or more in a week, having or not having a lock is a real money decision. I walk every client through the lock decision before we start: what is the current market doing, how confident are we in the closing timeline, and does a float-down option make sense for this file. Locking is not automatic. It is a judgment call I make with you based on real-time market conditions.
Have a situation like this?
Call Dan at (661) 342-9381. He will review your specific situation in a free call.