Mortgage Rate Lock: A Guide To Protect You From Rate Fluctuations (2024)

FAQs

Mortgage Rate Lock: A Guide To Protect You From Rate Fluctuations? ›

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.

Since mortgage rates change frequently, a rate lock helps protect you from those fluctuations, so you won't pay more if prevailing market rates rise before you close on your loan.

When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.

If you are worried about how high your monthly mortgage payments could rise in the future, then fixing your mortgage rate remains a sensible choice. It means that it is important to shop around to find the best fixed-rate mortage deal as rates could remain elevated for some time.

Initial rate lock: Some lenders may charge between 0.25% and 0.50% of the total loan amount for a lock-in period of up to 60 days. On a $500,000 loan, for instance, that would run you $1,250 to $2,500. If you want a longer period, you may need to pay as much as 1% of your loan amount.

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 market conditions shift favorably during the rate lock-in period.

Rates could continue to decrease if inflation cools, but don't expect a huge drop this year. According to the Mortgage Bankers Association's latest forecast, mortgage rates may fall to 6.5% by the end of 2024. Waiting until 2025 could be your best bet if you want to snag even lower rates.

Disadvantages of Locking Your Rate Early

The longer you want to lock your rate, the more it will cost. Rates may decrease before you close on your loan, in which case you are stuck with the higher rate you locked in, unless you paid for a rate lock that will float down to the lower rate.

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.

Monday is the best day to lock-in mortgage rates; Wednesdays are risky. Mortgage rates are in constant flux, even changing multiple times a day. This volatility can make it challenging to know when to lock in your rate.

Should I fix my mortgage now in 2024? ›

Forecasters believe mortgage rates may fall further in 2024, meaning it may be wise to opt for a variable rate or tracker mortgage for the time being, and fixing your mortgage once rates do slide. For a more accurate steer, it's a good idea to engage a mortgage advisor when you're ready to choose a mortgage.

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.

Given that the economic outlook for 2024 has predicted a decrease in interest rates, it may be advisable to go with a variable rate to save on interest-carrying costs if you can withstand market uncertainty.

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.

The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts. It's worth noting that interest rates could decrease during your lock period. Should this happen, you'll most likely have to pay the rate you initially locked in.

You can back out of a mortgage rate lock, but there are consequences. Backing out of a rate lock means giving up the application you've put time and money into. You'll have to start your mortgage application over from the start, and you'll likely have to re-pay fees like the credit check and home appraisal.

Cons. Getting a customized interest rate requires a credit check, which can affect your credit score. Origination fees are on the high side compared with other lenders, according to the latest federal data. Doesn't offer home equity lines of credit.

As mentioned above, depending on your lender, breaking a fixed-rate mortgage may come with penalties attached – and these penalties can quickly add up. For example: Variable-rate mortgage holders might expect to pay 3 months of interest (and potential additional fees) as a penalty.

Interest rates have held steady since July 2023.

Inflation has receded, but the Fed has signaled it wants more positive data before pulling the trigger. In March 2024, the central bank predicted three quarter-point cuts by the end of the year. As time goes on, however, that has become less of a certainty.

If you're buying a home, lenders typically can't lock your loan rate until you have an accepted purchase contract. That's because a mortgage is tied to real estate, which means the lock has to be tied to the address of the property you're buying.