Applying for a mortgage? Know when to lock in your interest rate and why it matters to your bottom line.

Finding the perfect house for your family is one of the most important parts of the homebuying process. But it’s not the only thing you need to do to get ready for the transition from renter to homeowner. You also want to get the lowest possible interest rate on your home loan. If you are worried that rates will rise between the time you apply for your mortgage and the closing date, you can lock in your mortgage interest rate. Here’s what you need to know:

What a Mortgage Rate Lock Is

When you apply for a mortgage with your lender, they’ll tell you how much they’re willing to lend you and let you know the interest rate they’ll charge you on the loan. You can request that the lender lock that rate. This will pause any rate changes for a set period of time. That means you’ll know exactly how much you’ll pay on the loan and won’t have to worry about changes in the market influencing the interest you’re charged.

Before you can request a rate lock, you’ll need to apply for a mortgage and get a quote from your lender. Assuming you’re happy with the interest rate you’re offered, you can ask about a rate lock once you’re preapproved.

How Long the Rate Lock Will Last

Unfortunately, rate locks won’t last forever. Your lender will determine how long they’re willing to lock the rate. This can be anywhere from as few as 30 days to as many as 120. Depending on the market and your situation, you may be able to extend the rate lock, but extensions aren’t guaranteed.

What Happens When It Expires

An expiring rate lock doesn’t mean that your preapproval for your mortgage will expire too. It just means that the interest rate you’ll pay on the loan will be subject to current market rates. If rates have dropped, that means you’ll end up paying a lower interest rate. But if rates have gone up, you could end up paying a higher interest rate for the loan. In some cases, you may be offered an extension on the rate lock.

The Pros and Cons of Locking Your Mortgage Rate

A lot can happen from the time that you apply for a mortgage to the date you close on your house. Interest rates can fluctuate wildly over the course of a month or two. If rates increase, you risk having to pay a much higher interest rate on your loan, for the life of your loan. By locking your rate, you’ll avoid that problem.

Mortgage rate locks are optional, but they can help you save money on your mortgage over the life of the loan. To make the best decision for your budget, you need to know when to lock your rate, why it’s important, and how the process works.

While the benefits of locking your mortgage rate often far outweigh the potential downsides, you need to understand both if you want to make an informed decision. Just as rates can go up over time, they can also go down. If you lock in your rate and interest rates drop, you may not be able to take advantage of that new lower rate by the time you close.

If you’re not sure which option is best for your situation, talk to your mortgage officer. They’ll be able to look at the market and your financial situation to help you determine if a rate lock is right for you. That said, locking your rate is usually the best course of action.

Not All Rate Locks Are the Same

Most rate locks simply lock in the rate you’re quoted when you’re preapproved for the loan. But others include something called a “float-down” feature. Float-down features allow you to renegotiate your rate lock to a lower rate if the average interest rates for new mortgages are lower than your locked-in rate. It’s important to understand that a float-down option does not automatically lower your rate if interest rates fall. You must notify your lender to request that your rate be floated down and then get their approval.

How Much Will a Mortgage Rate Lock Cost?

Usually, rate locks are free in the sense that you won’t have to pay a fee upfront to lock in a lower interest rate. However, some lenders may charge higher closing costs for the rate lock. It all depends on the lender, the terms of the loan you agree to, and your financial situation. You could also incur a cost if you opt for a float-down option. This option would allow you to take advantage of lower interest rates once you lock your mortgage rate.

Keep in mind that locking in your interest rate can save you far more than you’ll pay in closing costs over the life of your loan. Worried about those closing costs taking you by surprise? Don’t be. All you have to do is ask your lender for detailed information about the fees you’ll pay if you close on the loan. They’ll explain everything to you and may be able to help you find additional ways to lower those costs. But you won’t know unless you ask.

How to Decide if a Rate Lock Is a Good Idea

Locking your mortgage rate is completely optional. It’s up to you to decide if locking the rate is in your best interest or if you’d be better off letting the market dictate changes. Ask yourself these questions before you make a decision:

• Is the provided interest rate low and are mortgage rates expected to rise?
• Would locking your rate make you comfortable with your monthly payments?
• How long do you think it will be before you close on the house?

If you decide that locking in your mortgage rate is a good idea, mention it to your mortgage officer as soon as you can. The sooner they know that you’re interested, the sooner they’ll be able to help you put the process in motion.

The most important thing to remember is that your mortgage officer is there to help you throughout the application and closing. If you have any concerns about your mortgage, your rate lock, or the application process, don’t hesitate to ask. Your mortgage officer will happily take the time to answer those questions in detail. They want you to make an informed decision that aligns with your budget and your homeownership goals.

At the end of the day, an interest rate lock isn’t about getting the best loan deal. It’s about protecting your homebuying power.

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