What does it mean to “lock in” a mortgage rate?

Locking in a mortgage rate means agreeing to an interest rate and cost structure that binds you and your lender. 

A mortgage rate lock includes the annual interest rate, fees, and payment plan. For instance, you might lock in 3.5% for a 30-year fixed-rate mortgage — meaning your lender guarantees you’ll pay 3.5% interest for the whole loan term, and it won’t raise or lower your rate unless you refinance

You cannot close on a home loan without locking an interest rate — you have to do it, even if you wait until an hour before the lender prints your final documents.

All mortgage rate lock agreements contain:

• An effective date, when your agreement expires
• An interest rate
• A specific mortgage program, like a 30-year fixed loan or a 5/1 ARM
• The cost of your rate (for example, 1 point, which is 1 percent of the loan amount)

While not all mortgage lenders require rate lock agreements to be in writing, it’s better for you if it is. 

You can do it in person, sign and return a fax, or sign electronically with a service like DocuSign. 

It’s just better to be able to prove that you locked in X rate for Y number of days and to make sure that you understand what you’re committing to.

Two ways to get a lower rate after locking 

A mortgage rate lock is a commitment between you and your lender. As long as you close by the agreed-upon date, your lender cannot change your rate, even if rates suddenly skyrocket. 

That’s great for borrowers — except that the commitment goes both ways. If rates suddenly you can’t just back out of the rate lock and expect your lender to offer you a lower interest rate in return. 

There are just two ways you can get a lower rate if you lock in with a lender and then rates fall (more detail on both of these below): 

1. Ask your lender about a “float down option”— you pay an extra fee at closing in return for the lower current market rates
2. Cancel your loan application and switch lenders — you abandon your current lender and start over with one that can offer you a lower rate

There are huge benefits and risks to both of these strategies. 

You’re either facing a large float-down cost, or a big delay and added paperwork. 

But if the savings you’ll see from a lower mortgage rate are big enough, those hurdles may well be worth it. 

Float down options 

A float down provision or “float down option” is an agreement between you and your lender that can be made after you lock a rate. It lets you pay an additional fee — usually 0.5% to 1% of the loan amount — to drop your locked rate to current mortgage rates. For instance, a float-down provision on a $300,000 loan would likely cost around $1,500 (0.5%). 

Note that you don’t pay this fee at the time of the float down. Rather, it’s added to the rest of your closing costs.

Many lenders offer float down options. But their policies and fees vary.  

Oftentimes, you have to be able to drop your rate at least 0.25% to use a float down option. And the float down fee can cost as much as 1%. 

1% is still relatively cheap compared to the amount of interest you’re likely to save long-term. But a float down option isn’t worth it. Your rate has to drop low enough to justify the cost.   

For example, say you’re getting a $300,000 loan and you’re currently locked in at 3.75%. 

Then you see rates plummeting and you want to take advantage. Here’s how the math looks — depending on how far rates have fallen and how much the float down costs:

Keep in mind, though, that most people don’t keep a mortgage for 30 years. The average is around 7 years. So when you calculate your savings, you need to factor in how long you’ll stay in the house. 

Here’s how the cost of a float down looks if you only keep your mortgage 7 years, instead of 30:

To find out whether your lender offers a float down option, simply ask. 

And if you’re still in the shopping phase but think rates might drop further in the near future, asking about a float down option you lock might be wise — just as a precaution. 

Switching lenders after locking

Here’s a second scenario: You lock a mortgage rate, then rates fall, and your lender doesn’t offer a float-down provision. Or, your lender can’t offer you a low enough rate to justify one. 

You’re still not out of options. 

The second way to “unlock” your mortgage rate is by simply jumping ship. You cancel your loan application and go back to square one — applying with multiple lenders till you find the lowest possible rate. 

Switching lenders at the last minute could help you save big on interest and loan costs. 

Using the example above, you could save more than $15,000 by finding a rate just 0.25% lower than your locked rate. 

If you leave your lender before the loan closes, it is not allowed to penalize you or charge a cancellation fee. 

Federal protections give borrowers the right to opt out of a loan at any time before they close. 

you change lenders after locking a rate? 

So, you change lenders after locking to find a lower rate — but should you? If you’re refinancing your home, the answer may be yes. If you’re buying, the answer is likely no. 

We do not recommend canceling your loan application if you’re buying a house and closing soon (within a month). This strategy works better for refinancing. 

There are inherent drawbacks to switching lenders that make it dangerous for home buyers. The stakes are lower for refinancers, but they should still understand the process: 

• Money down — If you’re purchasing a home and you cancel your application before closing, you could potentially lose thousands in earnest money because the seller has the legal right to keep it if you miss your closing date
• Paperwork — Re-starting your loan means you need to re-verify your credit and income and do a lot more paperwork 
• Time — Re-doing the full application process can take a month or more 
• Fees — There’s a good chance you’ll have to pay third-party fees (like the credit check and home appraisal) twice

Other difficulties can arise if you have special loan considerations; e.g. poor credit, lower income, a down payment gift letter, a bank statement loan, or other attribute that makes it more difficult for lenders to approve your loan.

If it was challenging to get approved in the first place, it’s not worth throwing away your application to search for a slightly lower rate. 

Because of these challenges, the lender-switch strategy is not a great one unless you’re between a rock and a hard place — locked in with a lender that has high rates and no float down option. 

Of course, the stakes are lower if you’re refinancing. Your home is not on the line, and you don’t stand to lose any earnest money. 

If you don’t mind some extra work and waiting time, this might be a good solution for you (and a way to avoid the 0.5%-1% float down fee).

What if my mortgage rate lock expires?

If you lock in a mortgage rate, you’re committed to a “worst case” scenario. As in, if your loan fails to close before your rate lock expires, and rates have gone up, you’ll pay the higher rate. And once you lock, you can’t really unlock a mortgage.

But if your rate lock expires and rates have gone down, you get the lower rate. You’ll close at the rate you locked.

However, many lenders will allow you to extend your lock if interest rates have risen. 

It may even cost you nothing to add a day or two, and a small fee (0.125% to 0.25% of the loan amount) to add a week or two. That’s probably worth doing if interest rates have shot up recently.

You may also be able to re-lock the same rate if you don’t close on time.

For instance, if you locked in a mortgage for 30 days and after a week, you realize that it will take 35 days to close, you may be able to relock the same loan with a new 30-day period.

If rates have not changed or have fallen a bit, your lender should let you re-lock at no additional charge. 

If rates have risen, you may have to negotiate a new lock. Or take a chance on them coming down before your expiration and re-lock then.

Mortgage rate lock FAQ