January 27, 2022

What is a mortgage rate lock?

If you’re ready to finance a home and you believe mortgage rates may rise before you close on the loan, you should consider locking in a mortgage rate.

What is a mortgage rate lock?

A mortgage rate lock is a guarantee from your lender that the interest rate you were offered in your loan estimate is locked in and won't change during the time the loan is being processed. Locking in a mortgage rate can offer you protection if rates rise throughout the closing process. This is important because mortgage rates change daily. Check out our Mortgage Rate Calculator to keep an eye on the market. 

Before you lock in your mortgage rate, ensure your application has been completed and you qualify for the loan. Neat Loans requires you to file an intent to proceed before locking your rate. 

About mortgage interest rates

A lower mortgage interest rate is typically a better rate. With a lower rate, you’ll pay less over the life of your loan. In other words, it won’t cost you as much to borrow the money for your principal if you have a low interest rate. Over time, a lower rate could save you thousands of dollars.

Mortgage rates are unpredictable. They continually fluctuate based on numerous factors, including the real estate market, the economy, inflation, actions of the Federal Reserve, and worldwide events. Because of this, it is necessary to lock in your rate when ready to finance a home. 

Locking in a mortgage rate means if interest rates increase while your loan application is being processed, you will be able to keep the lower rate you’ve agreed upon. You won’t be stuck with a higher rate if rates go up when you close. However, if rates drop as you close, you’ll still have to stick with the agreed-upon rate. Rate locks help borrowers know what to expect when they’re purchasing a home, and allow the lender to draft accurate reports of what the monthly payment will be. 

It’s important to note that there are instances that can cause a locked rate to change. This can happen if there are changes to your debt-to-income ratio, your credit score, or your financial situation during the application process, so avoid making major financial changes during this time.

About mortgage rate locks

Some lenders offer mortgage rate locks at no cost while others charge a fee. There are also lenders who offer float-down provisions for an additional cost. Float-down options allow borrowers to get a lower rate should mortgage interest rates drop during the specified period. Some borrowers and lenders use a lock deposit, which is returned at closing, to help ensure neither party walks away from the agreement. 

Rates can be locked in for different periods of time, commonly 45 or 60 days, although extensions may be available. Oftentimes a rate lock extension will happen at cost to the borrower. It is essential to thoroughly read your mortgage rate lock agreement to ensure you understand the terms. If your lock needs to be extended, there is often a fee associated with this extension, which is why it is so important to wait to lock your loan until you are fully ready to begin the loan process. If you are aware of any extended vacations or any other reason you may need to delay your loan during the initial processing stage, avoid locking your rate until you can be fully available. 

Locking in a mortgage can be a wise decision if you find a rate that works for you and you feel mortgage interest rates might be on the rise. A trusted lender can help you navigate the mortgage rate lock process so you feel confident, prepared, and excited about purchasing a new home or refinancing the one you have. 

If you are considering refinancing or purchasing a home, log in to Neat Loans today and find out what interest rates are available to you

Jen Farmer

Chief Marketing Officer
Top-performing marketing leader with consistent appointments to higher levels of seniority at a $15B S&P 500 healthcare corporation. Broad B2B and consumer marketing experience in both strategy and execution, leveraging an analytical mindset with a Master’s level foundation in writing and communi...