Mortgage rate lock: how it works, how long to lock, and what can break it

What a mortgage rate lock actually is

A rate lock is a commitment from the lender that your interest rate, and the points or credits that go with it, will not change between the day you lock and the day you close, as long as you close inside the lock period and nothing material changes on your application. The Consumer Financial Protection Bureau describes it the same way, and notes that locks are typically available for 30, 45, or 60 days, and sometimes longer.

Until you lock, you are floating. A quote on a Tuesday is only a quote: if the market moves on Wednesday, the rate available to you moves with it. Floating is not wrong, but it is a decision, and it should be one you make on purpose rather than by default.

A lock should be in writing. Your lock confirmation, and page 1 of your Loan Estimate, show whether the rate is locked and the date and time the lock expires. If you do not have that in hand, assume you are not locked and ask.

How long to lock: 30, 45, or 60 days

Pick the lock period by counting backward from your closing date and adding a cushion. Longer locks generally cost a little more than shorter ones, either as a slightly higher rate or a slightly higher cost at the same rate, because the lender is carrying market risk for more days. The extra cost of going from 30 to 45 days is usually small next to the cost of a lock that runs out a week before closing.

Should I lock my mortgage rate now or float?

Nobody can reliably predict where rates will be in three weeks, including lenders. So the useful question is not where rates are going. It is what happens to your budget if they go the wrong way. If the payment at today's rate works and a quarter-point increase would strain it or threaten your approval, locking removes that risk. If you have room in your debt-to-income ratio and a long runway, floating for a while is a reasonable choice.

For most buyers in Crystal Lake, Huntley, Appleton, or Neenah with an accepted offer and a closing date 30 to 45 days out, we usually see the sense in locking once the contract is signed. You generally cannot lock a purchase until there is a property address, which is why a pre-approval letter does not come with a locked rate.

• Lock when the payment works and you would rather be certain than lucky
• Consider floating only if you can comfortably absorb a higher payment
• Ask what the lock costs at each length before choosing, since pricing differs by lender
• Get the lock confirmation in writing with the expiration date

What a lock covers, and what can break it

A lock protects you from the market. It does not freeze the facts of your loan. Pricing is built from your credit score, loan amount, down payment, property type, occupancy, and loan program. If one of those changes, the rate can be repriced even inside the lock period. The CFPB gives two common examples: the home appraises for less than the sale price, or the lender cannot verify income you stated.

• A low appraisal that changes your loan-to-value ratio
• A credit score that drops because of new debt or a missed payment before closing
• Switching loan programs, for example from conventional to FHA
• Changing the loan amount, the down payment, or how you will occupy the home
• Income or assets that cannot be documented the way they were described
• Closing after the lock expires

Rate lock extension: what it costs and who pays

If closing slips past the expiration date, the lock has to be extended or the loan is repriced, and repricing rarely works in the borrower's favor. A rate lock extension is usually priced per day or in blocks of days, as a fraction of the loan amount, and the cost varies by lender and by market conditions. The CFPB warns that you might have to pay for an extension even when the delay is the lender's processing time, so it is worth asking up front how your lender handles that.

The practical questions are simple. What does an extension cost per day or per week? Who pays if the delay is on the lender's side, the seller's side, or yours? Is there a maximum number of extensions? Get the answers before you need them. Most delays we see come from outside the loan file: a seller who needs more time, a title issue, a repair that has to be finished before the appraiser signs off.

Float down options, and locking on new construction

A float down is a provision that lets you take a lower rate if the market improves after you lock. It is not automatic and it is not universal. Where it exists, it usually comes with conditions: rates must fall by a minimum amount, you can typically use it once, there may be a fee or a slightly higher starting rate, and there is often a window close to closing when it must be exercised. Policies differ from lender to lender and sometimes from program to program, so ask your loan officer what is available on your specific loan before you lock, not after rates drop.

New construction is the hardest lock decision because the closing date depends on weather, inspections, and subcontractors, and a build in Woodstock or Kaukauna can easily run longer than any standard lock. Extended locks exist for this, generally with an upfront fee or deposit and sometimes with a float-down feature built in, but terms vary widely. With a construction-to-permanent loan, the structure is different again, because the construction phase and the permanent phase are set up together. If you are building, raise the lock question at application so the plan matches the build schedule.

Why closing in-house lowers lock-expiry risk

Locks rarely expire because of one big problem. They expire because of small handoffs: a file waiting in an underwriting queue in another state, a condition that bounces between three companies, a closing department that needs days of notice. Home State Bank approves, closes, and services its loans in-house, with underwriters and closers our loan officers can talk to directly. That does not make delays impossible, and a seller or a title issue can still push a date. It does mean fewer of the delays are ours, and when a closing date moves we can plan the lock around it early.