Homebuyers

When Should You Lock In a Mortgage Rate?

The cost of buying a home is more than just the sticker price. Mortgage interest rates play a large part in how much buyers will spend every month on their housing payments.

Mortgage rates often change multiple times a day, affecting how large of a loan a buyer may qualify for and how large their monthly mortgage payments will be.

That’s why homebuyers who have an offer accepted on a property may want lock in their rate.

Here’s what you need to know about mortgage interest rate locks.

What does it mean to lock in your mortgage rate?

Locking your mortgage rate means your lender promises to give you a specific interest rate on your home loan, even if rates go up before your loan closes. Mortgage rates can change every day, so locking protects you from surprises.

It’s kind of like locking in the price of concert tickets—you don’t want to check back later and see it went up. With a rate lock, you’ll know exactly what your monthly payment will be, which makes budgeting way easier.

Just a heads-up: you usually can’t lock your rate until you’re under contract on a specific property. That’s when the lender can tie the rate to a real loan scenario with dates and dollar amounts.

Also, the length of the lock matters. A 60-day rate lock might give you more time, but it usually comes with a slightly higher rate than a 30-day lock. It’s a tradeoff between flexibility and cost.

- Stephen Moye, New American Funding Sales Manager in San Diego, Calif.

Should you lock your interest rate when buying a home? 

When someone’s offer is accepted on a home, the first question they may ask is should I lock in my mortgage rate? It’s really a personal preference.

Buyers sometimes have their own feelings on how the market is doing. They hear that rates should be dropping. So, they’re wondering if rates will go down during the 30 days they’re waiting to close.

Would you be happier if the rate went down or would you be more disappointed if the rate went up and you didn’t lock? If your budget is very tight, that is a good reason to lock in your rate. Period.

Most lenders do not charge to lock the rate.

- Brenda Dintino, New American Funding Branch Manager in Tustin, Calif.

When should you lock in your mortgage rate? 

When it comes to locking in a mortgage rate, it comes down to your risk tolerance. The best advice is to lock in a rate as soon as you are comfortable with what is available to you. This takes the potential for rates rising in the short term out of play.

Everyone’s motivation will be slightly different. You may be more willing to float longer (not lock in) in hopes that mortgage rates will fall, knowing there is the risk that rates could move in the other direction. 

Often, the added peace of mind that rates can't go higher is helpful. But you may prefer the option to float down your rate if they come down before your closing. 

- Dan Brown, New American Funding Branch Manager in Newtown Square, Pa.

What happens if you lock your mortgage rate and then rates fall?

Many lenders will allow you to renegotiate your mortgage rate at least once if rates fall before you close on your home. This is called “floating down” your rate to current market rates.

Before you lock a rate, you will need to meet with your loan officer to review the rates, the market, and the best time to lock.

You will also need to make sure your lender offers an option to float down your rate after a rate lock and find out if there will be a cost to you to do so.  

- Dianne Steffey, New American Funding Branch Manager in San Antonio, Texas

What are some other tips to help homebuyers get the lowest mortgage rate? 

If you want to secure the lowest possible interest rate, focus on:

1. Building the highest credit score you can. This may help you snag lower mortgage rates and fees on your loan.
2. Maintaining a strong credit history, especially on major accounts. This means having older accounts, such as credit cards, where you have a history of paying off your debt on time every month.
3. Keeping a reasonable debt-to-income ratio, which is how much debt you have compared to how much you earn. You do not want to spend beyond your means.
4. Saving for a higher down payment, even when only a small amount is required. This may help you secure a lower mortgage rate.

These tips will help you earn the best rates while ensuring your mortgage supports your long-term financial goals.  

- Jennifer Rader, New American Funding Loan Consultant in Houston, Texas

Stephen Moye NMLS # 268619 

Brenda Dintino NMLS # 239946

Dan Brown NMLS # 179730

Dianne Steffey NMLS # 267658

Jennifer Rader NMLS # 208991