What happens if you lock in a mortgage rate and it goes down?
On the other hand, if you lock your rate and interest rates fall, you can't take advantage of the lower rate unless your rate lock includes a float-down option.
Once locked, the loan's interest rate won't change — no matter what's happening with the economy — barring any changes to your application details. You're protected from higher rates, but you won't get a lower rate, either, unless you have the option for a one-time "float down."
If your interest rate is locked, your rate won't change between when you get the rate lock and closing, as long as you close within the specified time frame and there are no changes to your application. Rate locks are typically available for 30, 45, or 60 days, and sometimes longer.
If mortgage rates drop after you locked one in, you may be able to “unlock” it with a float down agreement. Under this type of agreement — which typically costs extra and has limits on the size of the rate change — you may be able to get the lower interest rate.
“Mortgage interest [rates] can change every day and sometimes even multiple times a day, so we always recommend that borrowers lock in their rate.” It's up to you to seek the rate lock. If you choose not to do so, and you have no rate lock, this is known as “floating” a rate.
The lowest historical mortgage rate ever for 30-year fixed-rate mortgages was not all that long ago. In January 2021, due largely to the effects of the COVID-19 pandemic, mortgage rates sank to an all-time low of 2.65%, according to Freddie Mac. Mortgage rates stayed low all year, with an average rate of 2.96% in 2021.
Overall, locking in a mortgage rate for 120 days can be a smart move if you're worried about rising interest rates and want to have some stability in your monthly payments.
Know that you're free to switch lenders at any time during the process; you're not committed to a lender until you've actually signed the closing papers. But if you do decide to switch, re-starting paperwork and underwriting could cause delays in your home purchase or refinance process.
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Key takeaways
A mortgage rate lock extension fee is a charge borrowers pay to retain the interest rate they were initially quoted after a specific lock period expires. A lock extension fee can cost a few hundred or thousand dollars, depending on the lender's policy, the reason for the extension and other factors.
How far will mortgage rates drop?
MBA: Rates Will Decline to 6.1% In its January Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.9% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
Product | Interest rate | APR |
---|---|---|
30-year fixed-rate | 6.859% | 6.939% |
20-year fixed-rate | 6.739% | 6.840% |
15-year fixed-rate | 6.043% | 6.175% |
10-year fixed-rate | 6.094% | 6.328% |
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 5.9% and 6.1% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
Mortgage Rate Lock Cons
You could miss out on a lower interest rate, which could save you thousands of dollars over the life of the loan.
Generally, once you've locked in a mortgage rate, the terms are fixed and usually cannot be renegotiated. However, some lenders offer a float down option, allowing you to negotiate mortgage rates if the market conditions shift favorably during the rate lock-in period.
A “good” mortgage rate is different for everyone. In today's market, a good mortgage interest rate can fall in the mid-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances.
Mortgage Bankers Association (MBA).
MBA's baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
When you lock in your interest rate, it will stay the same for an agreed-upon amount of time, usually between 30 and 90 days. This means you won't need to worry about rates going up before your loan closes. This could save you a substantial amount of money if interest rates hike during the mortgage approval process.
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.
While you can technically lock your rate in with multiple lenders, doing so implies you're following through with the loan application process. Locking your rate could also trigger a credit check and sometimes other fees, which you might still be responsible for even if you decide to do business with another lender.
Is it OK to switch lenders before closing?
Switching lenders before closing, while possible, can cause delays in the overall process and could lead to a change in your closing costs. Changing lenders before closing may also require a new appraisal and credit check. However, it can result in a better deal and increased customer satisfaction.
Short answer: In the US, you cannot switch mortgage companies without refinancing. Longer answer: In the US, the servicing rights to your mortgage do not belong to you - they belong to the holder of the mortgage (in the business this is called the “investor”).
Therefore, unless inflation slows down significantly in the coming months, it is unlikely that mortgage rates will fall back to 3% anytime soon. In fact, some experts predict that mortgage rates could reach 10% by 2025.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
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