Gustan Cho The Mortgage Expert,
Publish On: July 13, 2023
This article covers the mortgage rate lock process and how to decide when to lock in a mortgage. You cannot close your mortgage without locking your interest rate when your lender gives you a mortgage rate quote that tells you what rate is available to you that day. But your mortgage rate is not guaranteed until you lock it in.
A mortgage rate lock means that the mortgage lock rate is good for the lock term. The longer the term of the mortgage rate lock, the more expensive it is. Usually loan officers will execute a mortgage rate lock sooner than later on borrowers with higher debt-to-income ratios in the event rising rates may disqualify the borrower for exceeding the max debt-to-income ratio cap guidlines.
Sometimes the facts of your application change enough to affect the risk to the lender. For instance, if you’re refinancing and your home appraisal comes in low, you could end up with a 90% loan-to-value instead of an 85% loan-to-value. That may increase your mortgage rate. If you fail to close within your lock period and mortgage rates have risen, you’ll probably have a higher rate unless you can extend your rate lock.
See today’s mortgage rates now.
Floating vs. Mortgage Rate Lock During the Loan Process
While your mortgage is in process, you can choose to “lock” or “float” your interest rate. “Locking” a mortgage rate means you and your lender make a commitment to each other. Your lender agrees to close your loan at the locked rate, even if mortgage rates are higher than when you locked. You agree to close at the locked rate, even if mortgage rates are lower than when locked. “Floating” is a rate that means you have not yet locked. Your interest rate is not guaranteed, and when you close, it may be higher or lower than current rates. You can lock in a mortgage rate for 7 to 180 days. The shorter your lock period, the lower the interest rate. When lenders quote mortgage rates, they usually quote a 30-day lock. If you close your loan within the lock period, you’ll get that interest rate, even if current rates differ.
What Happens if Mortgage Rate Lock Expires?
A lender must do a rate lock-in for an underwriter to issue a clear to close. You must be locked when the lender issues your loan documents. If you fail to close within your mortgage rate lock period, borrowers have several options. You may be able to extend your lock for a day or two. Your lender may be able to do this without an extra charge. Longer extensions, up to a week or two, will most likely come for .125% to .25% of the loan amount. Your other option is to relock your loan. You’ll get the same rate if interest rates are the same or lower than your locked rate. If rates are higher, you’ll get a higher rate. There is normally no charge to relock a mortgage rate. You cannot close at a lower rate after locking at a higher rate, even if your lock expires.
Related: Can I Change Lenders After Locking My Mortgage Rate?
Mortgage Rate Lock Timeline
The mortgage process takes place in stages. You can lock in your mortgage rate at any time during this process. However, you need a property address to lock in a mortgage. If you’re getting pre-approved for a home purchase before you go home shopping, you won’t be able to execute a mortgage rate lock. You must be under contract first. Your choice to lock or float depends on several factors. Longer locks cost more than shorter ones. So even if rates are rising, you might not want to lock in for six months if your new house is still under construction. How are interest rates trending?
If interest rates are rising, you might wish to lock in. If they are heading down, you might wish to float until right before closing. How long will it take to close your mortgage? Try to time your lock to cover your expected escrow.
If your closing day is in 45 days, a 30-day lock won’t do you much good. How do you feel about risk? Consider locking if you can get a good rate and your loan approval would not survive a rate increase. On the other hand, if you don’t mind gambling to try and get a lower rate, you could choose to float. If you’re refinancing, your strategy might be different. You could apply for preapproval, wait for rates to drop into your target zone, and then do a fast lock and close. Or just “set it and forget it” if rates are good and you don’t want to risk them increasing.
Mortgage Rate Float-Down: Best of Both Worlds?
Some people want to have their cake and eat it too. They want to lock in at today’s rate if rates go up. But they also want to lock at tomorrow’s rate if rates drop. They want it both ways. And they can have it both ways with a mortgage rate float-down.
A float-down is an option to lock in your rate now. So if rates rise before you close, you get today’s lower rate. But if rates fall before closing, you get the lower rate.
Float-down options cost money, however. Usually upfront. And float-down options are not standard. Some allow you to lock a rate and then relock if rates drop at any time during the loan process. Others only compare your locked rate with the current rate when you close your loan. In addition, many float-downs only kick in if the rate falls to at least .25% below your locked rate. For these reasons, few borrowers purchase float-down options. But they are available.
Related: What Happens if Your Credit Score Changes During the Mortgage Process?
Can Interest Rate Change During the Mortgage Process?
Mortgage rates change constantly, like stock prices or other financial products. As long as your interest rate is not locked, it is subject to change. A loan officer issues your Loan Estimate when you apply for a mortgage. On the loan estimate, an estimated mortgage rate will be quoted. The rate on the Loan Estimate is not locked.
The Loan Estimate is a disclosure that used to be called a Good Faith Estimate. It states a mortgage interest rate available at the time of disclosure.
Mortgage rates will float until the borrower locks the interest rate. When you lock in your rate, you get the interest rate in effect when you lock. It will likely differ from the rate disclosed on your Loan Estimate form. However, your interest rate could change during the loan process even if you are locked. If you switch to a different program, your rate will be different.
When Does The Lenders Need To Execute a Mortgage Rate Lock?
The decision to lock or float is entirely up to the borrower. Your loan officer may contact you and suggest locking, but the decision is yours. The only rule is that you cannot close without being locked. That said, your loan officer is not likely to recommend locking in if you are not closing soon or are not yet approved.
If you want to lock in, contact your loan officer and discuss the interest rates available at different lock terms — 15-day, 30-day, etc. You’ll want to ensure you can close your loan before your lock expires.
Your loan officer may ask you to sign a form stating the terms of your lock. It’s best to write your request, whether signing a form or sending an email or text. If you send an email or text, ask for confirmation to ensure the lock request was received and executed.
What Type of Mortgage Rate Lock Is Best
Most loan officers will do a 15-day or 30-day mortgage rate lock. The shortest lock available is seven days. You should only do a 15-day lock when you have loan approval and are ready to close quickly. Homebuyers and Homeowners who need to qualify for a mortgage with a national direct lender with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
