A lock-in agreement, commonly known as a mortgage rate lock, is a written contract between you and your lender guaranteeing a specific interest rate for a designated period—typically from 30 up to 90 days. This agreement protects you from interest rate increases while your loan application is processed and finalized.
When you apply for a mortgage and find a favorable rate, a rate lock lets you “lock in” that rate, giving you certainty despite market fluctuations. Without a lock-in, if interest rates rise before closing, your rate could increase, resulting in higher monthly payments and more interest over the life of the loan.
To secure a rate lock, you must request it from your lender after loan pre-approval and before closing. The lender provides a written agreement specifying the rate, lock period, and any fees involved. Some lenders offer free locks for a standard period, while others charge a fee ranging from 0.25% to 0.50% of the loan amount. Lock periods vary, commonly 30, 45, or 60 days, with options to extend if needed (sometimes at an additional cost).
A key feature to ask about is the “float-down” option. This provision allows your locked rate to be lowered if market rates drop during your lock period, offering flexibility without losing your locked-in protection.
Choosing an appropriate lock period is crucial. Locks that are too short risk expiring before closing, potentially leading to higher rates. Locks that are too long might incur higher fees. Timing your lock according to your loan process helps avoid unnecessary costs.
Here’s an example: Maria locks her mortgage rate at 6.75% for 45 days. Three weeks later, rates rise to 7.15%. Thanks to her lock-in agreement, Maria keeps the 6.75% rate, saving her substantial money over her loan term.
Common pitfalls include delaying your lock request in a rising-rate environment, selecting insufficient lock periods, ignoring float-down options, and failing to get the agreement in writing. Always obtain a copy of your lock-in contract.
For more insights on interest rates and mortgage products, explore our guides on Interest Rate Lock and Fixed-Rate Mortgage.
References:
- Consumer Financial Protection Bureau. “What is a mortgage rate lock?” ConsumerFinance.gov
- Investopedia. “Rate Lock: What It Is, How It Works, Example”
- NerdWallet. “What Is a Mortgage Rate Lock? Should You Get One?”
