Mortgage rate lock: Should you lock in your interest rate? (2024)

You've put in an offer on your dream home and the seller has accepted. But before you get too carried away with celebrating, you may want to take some time to consider a mortgage rate lock.

A mortgage rate lock is a guarantee from a mortgage lender that the interest rate they're offering you won't change for an agreed period (typically from 30 to 60 days). This can prevent your lender from increasing your mortgage's rate (due to changing market conditions) during the application and approval process. Depending on what's going on with mortgage rates, a lock might save thousands of dollars over the life of your loan.

Below, CNBC Select breaks down how a mortgage rate lock works and what to consider before asking for one.

Ideally, you want to lock in the rate when overall rates are low. But no one can predict the exact movements of mortgage rates — not even industry analysts possess that kind of crystal ball.

For that reason, it's best to avoid the guesswork and lock in the mortgage rate after you've shopped around for a mortgage lender and compared the rates offered to you. Your rate has a huge effect on your monthly payments, as well as how much you'll pay in interest over the life of the loan. It's a good idea to compare offers from at least three lenders to ensure you're getting the best deal.

CNBC Select recommends SoFi if you're looking to save money through discounts and other lender incentives, Rocket Mortgage if your credit score is on the lower side and Ally Bank if you want to avoid lender fees.

Mortgage rates move constantly. Many interconnected factors contribute to these movements, including changes in the Federal Reserve's target rate, the overall state of the economy, conditions and trends in the housing market and the 10-year Treasury bond yield, to name a few. A mortgage rate lock is designed to protect the mortgage interest rate your lender offers you from the influence of these market forces. If you're taking advantage of a mortgage rate buydown, you'll also be locking in the cost of any discount points.

Usually, you can lock in your mortgage rate for 30 to 60 days. Certain loans, such as construction loans, may have longer lock periods to allow enough time to close. During this time, even if mortgage rates go up, the rate your lender has given you won't change.

But what if the rates go down? Unfortunately, you may miss out on potential savings — unless your lock comes with a "float-down" option. This feature allows you to take advantage of a lower rate when it's available, but you typically can only use it once and it usually comes at a fee. If your lock doesn't have this feature, you may be out of luck. At the same time, the lock's purpose isn't to guarantee the best rate but to protect you from an increase in loan costs. And most of the time, that's well worth the price.

A mortgage rate lock isn't free. Even when there's no official fee listed on your closing costs breakdown, the lender will factor it into the rate you're receiving. Typically, you can expect to pay somewhere between 0.25% and 0.50% of your loan to lock in your rate. If you need to extend the lock period, you might have to pay an additional fee for that too — usually, 0.375% of the loan amount.

To lock in a mortgage rate, you need the address of the property you're interested in purchasing. Some lenders may allow you to lock in the rate once you're preapproved, while others might require that the seller first accepts your offer.

Rate lock policies vary by lender, but usually, a loan advisor will offer you one once your application is approved and ready to go to underwriting. If they don't, ask about the rate lock and how much it will cost you.

Can you change mortgage lenders after locking in your rate?

A mortgage lock doesn't tie you to a lender. However, if you switch lenders, you'll have to start the process again. This may result in closing delays that will force you to pay fees to the seller, or your deal might fall through altogether. Even if that worst-case scenario doesn't occur, you may still need to pay expenses such as appraisal and credit check fees again. For that reason, it's best to shop for a lender before you're too far ahead in the process.

A mortgage rate lock protects your interest rate, but it's not absolute. Certain situations may void your rate lock.

Your mortgage rate lock is tied to a specific property address. If your purchase contract is canceled, so is your lock. Once you find a new home, you'll need to get a new rate.

Further, all the conditions of your mortgage contract, including your locked rate, are contingent on your financial profile staying unchanged. For example, if your credit score drops or you add to your debt, your lender will reevaluate your eligibility, which can affect what interest rate they'll offer you. Because of this, avoid opening new credit lines or racking up balances on your credit cards until you close — otherwise, you might put your home purchase in jeopardy. Likewise, your interest rate may change if the appraised value of the property changes from the time you initially locked your rate.

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Mortgage rates often fluctuate, but a rate lock can protect the rate your lender has quoted you from such fluctuations. While you may need to pay for it and it doesn't guarantee the lowest rate, it provides the peace of mind that comes with knowing the cost of your mortgage won't increase before you close.

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