When should you lock your interest rate?

Rate locking is a topic that’s come up a lot recently as the mortgage rate climbs higher and higher. Homebuyers first had to deal with rapidly rising prices - now the mortgage rates have followed! What does it mean to lock your mortgage rate, how can you do it, and when should you do it? Here’s what you need to know.

What Does it Mean to Lock in a Mortgage Rate?

Dealing with a fluctuating mortgage rate can be difficult when you’re buying a home - you could end up paying $100 more every single month for no other reason than the mortgage rate inched upward. For this reason, lenders allow borrowers to lock in rates, which means they will guarantee a set mortgage rate for an agreed-to period of time (usually 30 or 60 days).

Sometimes lenders charge a fee or a slightly higher rate for this - usually it’ll be already included in your mortgage rate itself, rather than appearing as a separate line charge.

Locking in a rate allows you to more accurately predict your future payments. Although we hear about how rates have been rising, in truth they fluctuate on a weekly, and even daily basis. As of this writing (4/8), the 30 yr. fixed mortgage rate fell by +.11% over the course of 24 hours, but over the last week, it rose .19%.

A 1% increase in rates means about a 12% decrease in buying power for would-be homebuyers - basically, for the same amount of money you now qualify for a home worth thousands of dollars less. So if rates seem to be on an upward trajectory and your mortgage advisor tells you to lock in your rate, you probably should.

Is it Worth it to Lock My Mortgage Rate?

All signs point to mortgage rates continuing to rise throughout the rest of 2022. On April 5, mortgage rates hit their highest point in a decade, topping 5% - and by the time you read this, they may have climbed higher. Interest rates have risen over a full percentage point over the past year. Both inflation and forthcoming interest rate hikes from the Federal Reserve have been driving the rise and it's not clear whether, or when, rates will stabilize.

However, the general trend is that interest rates are rising, So if the home buyer is ready, it may make sense to lock the interest rate as long as the home buyer is happy with their estimated monthly mortgage payment.

So yes, it’s worth it to lock in your mortgage rate today because the likelihood of rates going continually up, rather than down, is high. However, this should always be a conversation with your mortgage advisor, who knows your financial situation best.

Of course, things can change. If mortgage rates consistently trend down, it might make less sense to lock your mortgage rate - since you're likely to access a better rate the longer you wait.