Like stock prices, mortgage interest rates constantly change. By locking in, you freeze the lender's rate and origination charges. As a result, you know how much your loan will cost before you close.
In this article, I’ll explain how rate locks work and answer some common questions our customers ask about locking mortgage rates.
What is an interest rate lock?
A rate lock is an agreement between you and a mortgage lender. The lender agrees to give you an interest rate with certain fees for a specific time. In return, you agree to accept the lender's rate and fees and close the loan before the lock expires.
Let's say the lender offers a $400,000 loan at 6% with $1,000 in origination fees for 40 days. By locking, you accept the lender's terms, and the lender agrees to hold the rate at 6% for 40 days.
How long can you lock in an interest rate?
The lock period is the duration of the lock—the number of days from the lock date through the expiration date.
Different lenders offer different lock periods. For example, NewCastle Home Loans offer 25, 40, and 55-day locks.
Your lock period must take you through the closing. The closing is the day you buy the home from the sellers, finalize the paperwork, and transfer the money and ownership of the property.
The closing date is typically 30-to-45 days from when you signed the real estate sales contract. You'll find the closing date on page 1. Suppose you agree to close in 30 days. Then, lock the interest rate for at least 30 days so the rate lock expires after the closing date.
Longer lock periods typically cost more. This is because the lender's rate and fees are higher for a more extended lock.
For example, the interest rate and fees for a 55-day lock will be higher than a 40-day lock. The lender offering 6% with $1,000 in origination fees for a 40-day lock might offer 6.125% with $1,500 in origination fees for 55 days.
I recommend locking your rate for 55 days or less. Avoid lenders offering extended lock periods for 90 days or more. Their rates are much higher, and they charge rate lock fees upfront. So they are never worth the cost.
Does it cost anything to lock a rate?
Locking your interest rate is free when you finance your home through NewCastle Home Loans.
However, some lenders charge a rate lock fee upfront to hold the rate for the lock period. The lender's rate lock fee is a hedge protecting them and restricting you. Therefore, I recommend using a lender that does not charge a rate lock fee.
For instance, if rates drop before you close, you want the flexibility to negotiate a lower rate or change lenders without losing the rate lock fee.
When do I lock in a mortgage rate?
Lock the rate soon after you're under contract. Under contract means the seller has accepted your offer on the property. When you're under contract, you have the details to lock the rates, like the property address, purchase price, loan amount, and closing date.
How do I lock the mortgage interest rate?
When you're ready, tell the lender to lock the interest rate. They won't automatically do it for you.
After applying for the mortgage, ask the loan officer for the current rate and origination fees when you're ready to lock. Then, tell the loan offer to lock the rate if you're happy with the proposal.
The lender confirms your lock by sending you a Loan Estimate and a Rate Lock-in Agreement. Because many banks mail the forms via USPS, ask the loan officer to email them immediately. You can review them and contact the loan officer if you have questions.
First, review page one of the Loan Estimate to ensure the rate is locked and expires after the closing date.
Next, review the Origination Charges in section A, on page two, in the Loan Costs column on the left. Origination Charges are fees paid directly to the lender at closing.
Check out our Loan Estimate Explainer
Use our free mortgage calculator. It gives you honest rates and closing costs in real time, so you know how much money you need to buy a home.
Then, read the Rate Lock-in Agreement.
- Interest Rate
- Lock Expiration Date
- Estimated closing date
At NewCastle, we confirm your lock instantly by email and through the loan dashboard, so you never worry about errors.
What if I lock in a rate, and it goes down?
Remember, the mortgage market is in constant flux, and nobody can accurately forecast rates. However, one rate prediction is 100% accurate; they will either increase or decrease after you lock.
Also, keep in mind the rate lock agreement works two ways. First, you accept the lender's terms. Then, the lender won't change your rate, payment, or fees in exchange.
With that said, you feel more secure after locking in because you know what to expect for a monthly mortgage payment. And if rates increase afterward, you feel pretty good about your decision to lock.
But on the other hand, when rates drop after locking, you want a lower rate. We get it. A lower rate is an opportunity to save money over the long term.
So ask the lender's loan officer for a lower rate. They might concede to keep your business. If he says no, then decide if switching lenders is worth the savings.
View today's rates and fees in real-time on our website to see if we can offer you a better deal.
Can I switch lenders after the locking rate?
You may change lenders after locking a rate for any reason. However, it usually happens because the initial lender denies the loan, not of the interest rate and fees.
If you decide to switch, you must reapply with the new lender. So, ensure the new lender has enough time to process, underwrite, and prepare your loan for closing.
Then, decide if going through the loan process again is worthwhile. Start by checking the new lender's rates and fees and determining if they will reuse any services you already paid for, such as the appraisal.
NewCastle Home Loans can have your loan ready to close ten days after you apply. So if you need help closing quickly, please contact us.
Can the interest rate change after locking?
After locking, the lender may still increase your interest rate and fees if you change your application. For example, the following changes could affect your rates.
- The loan type or terms change.
- The down payment or loan amount decreases.
- The appraisal value is higher or lower.
- The lender could not document your income.
- Your credit score is lower.
What happens if my rate lock expires?
If your rate lock expires, you must relock it before closing. When relocking, the lender gives you the current market rate or the rate you locked initially, whichever is higher.
For example, your initial rate of 6% expired, and rates have since increased to 7%, so your new rate after relocking is 7%. On the flip side, if rates decreased to 5%, your new rate after relocking is 6%, the same as your initial rate.
Before the rate lock expires, ask the lender to extend it if you need more time.
How much does a rate lock extension cost?
A rate lock extension is when the lender adds extra days to your rate lock period. Most lenders allow you to extend the rate lock for a fee if you request it before it expires.
Different lenders charge different fees. And typically, the longer you need, the more it will cost.
NewCastle Home Loans charges a fee of 0.30 percent of the loan amount to extend the lock for ten days. For a $100,000 loan, a 10-day extension would cost $300. If you need more time, you can request another. We offer three for a total of 60-days
Who pays for a rate lock extension?
As you can imagine, lock extension costs can add up. And it's not fair for you to pay when the delay is someone else's fault. So, of course, NewCastle covers the cost if we're to blame. However, we charge you the extension fees when the seller delays the closing. Typically, buyers ask sellers to pay the fees through a seller credit.