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Mortgage Lock-in

A mortgage lock-in is a lender’s agreement to hold a specific interest rate for a stated period for a loan at the prevailing market interest rate.  This provides the borrower some protection against the interest rates going up during the lock period.

If you think the rates are going down, the advantage would be to “float” and take advantage of the lower rate.  If you think the rates are going up, you could lock when you apply or when the application is approved.  Some buyers are marginally qualified at the current rate and if the rates go up, it could keep them from buying the price home they want or must make a larger down payment.

The lender will require the borrower to pay a fee for the lock-in.  It could be a flat dollar amount or a percentage of the loan to be made.  Usually, the longer the rate lock period, the higher the fee will be. 

The agreement should include the terms you’ve locked in such as the mortgage rate, points and other costs, the lock’s effective and expiration dates, the cost of the lock itself, and any options that may be available.  As with any contract, it should be in writing to avoid misunderstanding.

The risk in a lock-in is that if the rates go down, you won’t be able to take advantage of it unless there is a “float down” clause in the agreement.  If so, you must advise the lender that you want to take advantage of it.  You may incur additional costs to rewrite the lock-in.

Locks can be anywhere from 15 to 60 days.  Your lender can advise you how long it should take to get it approved and close the loan.  If it doesn’t close on time, the lender may extend the lock for free, charge an additional fee or a percentage of the loan.

Mortgage brokers act as middlemen for the lender and borrower.  It is important to know who is locking the rate because generally, a mortgage broker cannot write the lock but has to obtain it from the lender.

For more information, see the Federal Reserve Board’s Consumer Guide to Mortgage Lock-Ins.

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