Closeup of hands of man calculating finances.

Mortgage Rate Lock: What Is It And When Should You Use It?

Kevin Graham7-minute read
September 22, 2022

If you’ve been following the news lately, you know that the Federal Reserve has been raising interest rates in order to get control of inflation. This is concerning if you’re looking to get a mortgage. Because your interest rate can change quite a bit between the time you’re preapproved and when you close on a home, a mortgage rate lock can prevent fluctuation.

Refinance to your best mortgage.

Apply with Rocket Mortgage® to see if your home loan could better match your current needs.

NMLS #3030

Rocket Mortgage Logo

What Is A Mortgage Rate Lock?

A mortgage rate lock allows you to hold a rate for your mortgage loan while you go through the refinance or home buying process. While this is useful in any mortgage process, it’s especially crucial when buying a home because there are extra steps involved.

Not only do you need to get your documents in, but homeowners insurance and title insurance need to be secured. The appraisal and home inspection also take time. For this reason, you may find that it costs more to secure a purchase rate than for a refinance. That’s because the refinance rate doesn’t have to be locked as long. We’ll have more on why it works that way later.

Float-Down Rate Lock

A float-down rate lock involves locking your rate but having the option to lower your rate under certain conditions.

Our friends at Rocket Mortgage® offer RateShield®,1 which gives you the opportunity to lock during Verified Approval, when they check your credit, but also gather documentation on your income and assets.2 This is especially important to consider if you’re a home buyer because most rate locks can’t be done until you have a signed purchase agreement. With RateShield, you can protect your budget from the hit of higher rates while you’re still shopping and maybe even get a lower rate if things break the right way. RateShield lets you lock your rate for up to 90 days while shopping for a home. If rates fall at any time over that 90-day time frame, you can float down to a lower rate one time.

How Long Can You Lock In A Mortgage Rate?

The exact amount of time you can use a rate lock varies between lenders, but in most cases, you can expect between 30 and 60 days. Some lenders may even offer an extension to 90 or 120 days. However, you might be required to pay an extra fee for pushing back the expiration date, even if the initial rate lock period was free.

You don’t have to lock your rate at the time of your initial loan approval. You can lock your rate at any time between signing a purchase agreement – or earlier if your lender allows – and just prior to closing the mortgage. How long you lock your rate influences how much you can expect to pay for the rate you’re getting. We’ll have more on that in a minute.

We’ve talked about the costs for securing your interest rate, but there are several other factors that influence the rate itself, including how you plan to occupy your real estate along, with your down payment or equity amount and the length of your loan term.

What Does It Cost To Use An Interest Rate Lock?

There’s no standard fee that lenders charge to lock your rate because each lender has their own rate lock policies. However, the charge to lock your rate (if any) is typically paid in mortgage points. A single mortgage point is 1% of the loan amount, so one point on a $200,000 mortgage is $2,000. Points can be bought in increments down to 0.125% of the loan amount.

If you ever refinance and you’re only locking your rate for 15 or so days to get your paperwork in, it might not cost you anything and you could even get a break on the rate. If you want to lock for 45 or 60 days, you might pay a quarter- or half-point, depending on how the lender structures their fees. This can be paid immediately or as part of your closing costs.

It’s important to note that if you miss the deadline on your rate lock, your lender may charge you for each extension. At some point, you’ll be charged current market pricing again if you miss your closing day enough.

If you take one thing away from this, be aware that the shorter your lock period, the lower your costs to lock. When lenders lock your rate, they do what’s called hedging. That means they have to protect themselves against the possibility of rates rising dramatically. The longer your lock, the more difficult it is for lenders to hedge their bets.

Lock in today's rates before they go up.

Defend against rising rates with RateShield®.1

NMLS #3030

Rocket Mortgage Logo

When To Lock In A Mortgage Rate

The most important aspect of choosing when to lock your mortgage rate is ensuring it doesn’t expire before you close on your new home. After that, the perfect time to use a rate lock will depend on your personal situation and whether interest rates are predicted to fall or rise.

Typically, the earliest you can lock a rate on a refinance is right after completing your application. With a purchase, it’s going to depend on the type of rate lock offered by the lender.

For something like RateShield, you’ll be able to lock your rate while you’re still shopping for a home. If you’re dealing with a lender after you have a purchase agreement already in place, that works a little differently. You may have to meet certain underwriting conditions. We’ll get into it more below. In any case, you can also wait to lock until just before your loan closing.

While this covers when you can lock your rate, when you should lock it depends on your personal tolerance for possible fluctuations. If you’re looking at predicted interest rates and think they might fall soon, you can choose to wait it out. Just be aware that life tends to laugh when we think we can predict anything, especially interest rates.

During A Home Purchase

If you’re purchasing a home, there may or may not be conditions regarding when you can lock your rate:

  • If your lender offers the ability to lock your rate while you shop for a home, you may be able to do it as soon as you get prequalified. This is the case with RateShield.
  • If you can’t lock while shopping, your lender may require that certain contingencies are met before the rate is locked.
  • A lender may require that the house be move-in ready.
  • You may be able to lock once your closing date is scheduled.

During A Refinance

Whether you’re doing a rate-term or cash-out refinance, you can pretty much lock your rate in the early stages of the process because refinances close faster. But when should you? Consider the following:

  • If you’re doing a rate/term refinance, will you be in the house long enough to get past the breakeven point where the money you save on the monthly payment outweighs what you pay in closing costs with that rate? Lock it.
  • If you’re doing a cash out, the goal is a little different and not about lowering your rate, but the key is to just take the lowest rate you can get.

Your Home Loan Expert can also offer advice on timing.

How To Lock A Mortgage Rate

You can lock your rate by speaking with a lender or working through their online portal. However, there are several steps that need to be completed to set you up for success:

  1. Have your credit report pulled. Before you apply, you can check your own credit score. If it needs work, then you’ll have time to resolve the issues and pay off debt before applying if you know what your situation is ahead of time.
  2. Get an idea of loan amount, term and down payment. Take advantage of free online mortgage calculators to get an idea of what you can expect to have for a monthly payment and how much you’ll be able to borrow based on the down payment or equity you have.
  3. Submit a mortgage application. When you’re ready, it’s time to apply with lenders. If it’s a refinance, you’ll have the option of locking right away. If it’s a purchase, it will depend on whether you found a house yet and what options the lender offers.
  4. Assess the Loan Estimate. Once your application is fully complete, your lender will send you a Loan Estimate with an assumed monthly payment based on a quoted interest rate.

At this point, you have a couple of different options. You can choose to lock your rate and move forward with that lender or shop for better rates at other lenders. Or you can choose door number three and wait for rates to come down before moving ahead with the home buying or refinance process.

The Bottom Line

A mortgage rate lock involves holding your mortgage rate in place to prevent the rate from fluctuating higher while you’re waiting to close. Everyone locks. It’s just a matter of timing.

If you’re risk-averse, you might choose to lock earlier rather than later. If you think rates are going to come down, you might choose to wait longer. Rocket Mortgage offers clients the ability to lock their rate and move down to a lower rate one time while shopping for a home.

If you’re interested, you can fill out an online application to get a rate quote from Rocket Mortgage. If the rate works for you, lock it in. You can also give them a call at (833) 326-6020.

1 RateShield Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days. Please contact your Home Loan Expert for additional information. This offer is only valid on 30-year FHA, VA and conventional purchase loan products. RateShield Approval not eligible for clients with a signed purchase agreement, on Charles Schwab loans, or new construction loans. Additional conditions and exclusions may apply.

2 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.

Lock in today's rates before they go up.

Defend against rising rates with RateShield®.1

NMLS #3030

Rocket Mortgage Logo

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.