Whether you’re buying a home or refinancing an existing mortgage, there comes a time when you have to decide on a mortgage rate. No, you don’t get to pick the rate you want to pay, but you do have the opportunity to choose when to lock it.
To experience the most savings, pay attention to current mortgage rates and where they are heading. And, don’t forget to ask yourself the following questions before making a decision.
What is a mortgage rate lock?
A mortgage rate lock sets your interest rate until closing, as long as there are no changes made to your application. Application changes can include a new loan program, a difference in your down payment amount, credit score changes, or even an appraisal that comes in higher or lower than expected. If any of these changes happen, your rate lock could be affected.
Most lenders will commit— in writing— to a mortgage rate for a specific time period. That’s because Regulation Z requires mortgage issuers, credit card companies, and other lenders to provide written disclosure of important credit terms, such as interest rate and other financing charges. In this case, it requires a lender to notify a borrower within three business days of locking the interest rate. Some states have a formal Lock-In Agreement, but most don't since the Loan Estimate already lists all applicable expenses.
How long can you lock in a mortgage rate?
Lock periods are typically for 30, 45, or 60 days, and sometimes longer. Most mortgage applications are completed within 60 days, so these lock periods are usually sufficient for borrowers. Though it’s not mandatory to lock your rate, it’s important to remember that interest rates can fluctuate. So, it’s in your best interest to keep your eye on them as you move through the mortgage process.
How often do interest rates change?
Mortgage rates can change daily, sometimes multiple times a day. They’re difficult to predict, though they’re often influenced by economic changes, world events, and the Federal Reserve (also known as the Fed in the media). While the Federal Reserve does not set the specific interest rates in the mortgage market, its actions in establishing the Fed Funds rate significantly influence them.
The bottom line: bad news and uncertainty are generally good for mortgage interest rates. Investors tend to flock to bonds in bad times, and more demand pushes interest rates lower.
Is there a right time to lock your rate?
That’s debatable. Some say to lock an interest rate after you’ve made an offer on a home. Others argue to lock an interest rate during the mortgage approval process, so you have a clear idea of your new mortgage payment by the time you get to closing. It’s all a matter of personal preference. Are you a gambler or would you rather get it done and over with?
No matter your answer, it’s important to understand the significance a rate change can have on your mortgage.
Learn more by trying our mortgage amortization calculator.
Does it cost money to lock your rate?
A 30-day rate lock is usually free, but anything longer may incur a mortgage rate lock extension fee or a higher interest rate. Be sure to ask your lender what they charge. At American Financing, you can lock your rate up to 90 days at no charge.
What is the float down option?
Some lenders offer a mortgage rate lock float down, which enables borrowers a one-time opportunity to exchange their current rate for a lower rate, assuming rates have fallen. Think of it as an enhancement to the rate lock, because it’s only available after you lock your rate. If you have time before you close on your home and think that there’s a chance that interest rates can get better, then locking your rate now (just in case rates don’t get better) and choosing a float down option may be for you. Just keep in mind there are additional costs when it comes to the float down option. Be sure to have your lender quote their fees to you.
Key takeaways
There are many things to consider when it comes to purchasing a home or refinancing an existing mortgage. A general understanding of what influences mortgage rates can help you make a financially sound decision. But keep in mind, circ*mstances and benefits differ based on your personal financial situation. So, it’s always in your best interest to work with a lender who employs dedicated mortgage consultants and — better yet — no upfront fees.
When you’re ready to walk through options and receive a custom home loan program, give us a call at (800) 910-4055.
FAQs
You can choose to lock in your mortgage rate from the moment you select a mortgage, up to five days before closing. Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you.
What is the best day to lock in mortgage rate? ›
History shows that Monday is the calmest day for mortgages. It's because there isn't as much news reported about the markets at the beginning of the week compared to the end of the week. Aiming to lock-in your mortgage rate on a Monday is your best bet to get a calm rate compared to other days of the week.
At what point are you locked into a mortgage rate? ›
You can lock in your interest rate as soon as you've been approved for the mortgage, though you may not always want to do so immediately. Closing on the home could take several weeks, and you want to be sure that you have ample time to complete the homebuying process before your lock-in policy's expiration date.
When building a house when do you lock in your interest rate? ›
Many borrowers want to lock in an interest rate on their permanent loan. In many instances this is possible as early as nine months prior to project completion. Your banker will spend time talking about long term rate lock options and what may make the most sense for you.
How long should I lock my interest rate in for? ›
The most common period is between three and five years. There is little point in fixing a loan for two years or less because it is too short a timeframe to protect yourself from interest rate hikes. Locking in an interest rate for more than five years is also inadvisable, as it is too restrictive.
What if I lock in a rate and it goes down? ›
If interest rates go up after you've locked in your rate, you get to keep the lower rate. 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.
Should I lock in a rate today? ›
Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan.
Can you negotiate a mortgage rate after locking? ›
Yes, it's possible for your mortgage rate to change after a rate lock. This can happen if details of your application — such as your credit scores, debt-to-income ratio or down payment — change before you close on the home loan.
Are interest rates going down in 2024? ›
NAR expects that rates will fall to 6.5% by the end of 2024, according to its latest forecast, and that existing-home sales will increase 9%.
Can I change rate after locking? ›
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.
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Current mortgage and refinance rates
| Product | Interest Rate | APR |
|---|
| 30-year fixed-rate | 7.068% | 7.151% |
| 20-year fixed-rate | 7.069% | 7.174% |
| 15-year fixed-rate | 6.331% | 6.470% |
| 10-year fixed-rate | 6.188% | 6.407% |
5 more rowsMortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
Should I lock in my mortgage rate for 2 or 5 years? ›
Given the potential for even lower rates, it can make sense to take a shorter term fixed rate, such as a 3 year fixed rate, instead of a 5 year fixed rate. This is because you would renew sooner (ie. 2 years sooner) at a lower rate, while also protecting yourself from higher variable rates in 2024.
Is it better to lock or float mortgage rates? ›
If you think rates are likely to stay the same or increase, you might be better off locking. But again, no one ever really knows for certain what the rates will do, so you must be willing to accept the risk if you choose to float. If uncertainty keeps you up at night, locking is definitely the better option.
What will mortgage rates be in 2024? ›
Mortgage giant Fannie Mae likewise raised its outlook, now expecting 30-year mortgage rates to be at 6.4 percent by the end of 2024, compared to an earlier forecast of 5.8 percent.
What day of the week are mortgage rates typically lowest? ›
In general, 25 basis points equates to a 0.125 percentage point change in mortgage rates. This means that, on average, we should expect mortgage rates to move ±1/8 percentage point on Wednesdays and Fridays, and not at all on Mondays. It's no accident that Wednesdays and Fridays are most volatile, either.
What time of year are mortgage rates lowest? ›
If you want the best deal on your mortgage, consider buying a home when prices are at their lowest: late fall and early winter. Home prices peak just about every year in the summertime. Yes, shopping for a home in the summer months means you're likely to see plenty of available homes on the market.
Do mortgage interest rates change over the weekend? ›
Each morning, Monday through Friday, banks and their loan officers get a fresh “mortgage rate sheet” that contains the pricing for that day... Mortgage rates do not change during the weekend, though pricing can definitely change between Friday and Monday.
