Mortgage Rate Lock: Lock Periods, Float-Down and Expiry

What a rate lock is

Mortgage rates can change daily, sometimes hourly, the CFPB notes. A lock fixes your rate from the day you lock until closing, under two conditions:

• you close within the specified time frame; and
• there are no changes to your application.

If your rate is not locked, it can change at any time before closing. See mortgage rates explained for what drives the rate you are offered.

Lock periods

The CFPB says rate locks are typically available for:

Lock policies vary by lender. The CFPB suggests making sure the lock is long enough to cover the time until closing. If you worry the period is too short, ask about switching to a longer lock now rather than later. Ask whether a shorter or longer lock is available and at what cost.

What the Loan Estimate must show

Federal rules (Regulation Z) set what the Loan Estimate says about the lock:

• Rate Lock line. Page 1 must state whether the interest rate is locked for a specific period, labeled “Rate Lock” (12 CFR 1026.37(a)(13)).
• End date and time. If the rate is locked, the lender must give the date and time, including the time zone, when the lock period ends.
• Warning. The form must state that the rate, points and lender credits may change unless the rate has been locked.
• Revised estimate after locking. If the rate was not locked when you got the Loan Estimate, the lender must send a revised one no later than three business days after the lock, with the new rate, points, lender credits and other rate-dependent charges (12 CFR 1026.19(e)(3)(iv)(D)).

The CFPB adds that the Loan Estimate does not show how much it costs to extend the lock, what you pay for the specific lock period, or the price of a different period. Ask for those details.

What can still change a locked rate

A lock protects you from market movements, not from changes in your file. The CFPB lists common reasons a locked rate can change:

• you change the kind of loan or the down payment amount (see down payment);
• the appraisal comes in higher or lower than expected;
• your credit score changes, for example after a new loan or a missed payment (see credit score and mortgage);
• the lender cannot document overtime, bonus or other income.

Changes in your loan amount or verified income can also change the rate.

If rates fall: float-down options

The CFPB points out a downside of locking: a lock may keep you from a lower rate if rates fall after you get your offer. Some lock agreements include a float-down option. CFPB rules for lender reporting (Regulation C commentary) mention a rate being reset after a lock “because the borrower exercises a float-down option or the agreement expires”.

Rate lock policies vary by lender, the CFPB says, so ask whether a float-down is offered, what it costs and when it can be used. The CFPB suggests asking: “If I lock my rate, and interest rates go down, what happens?”

If the lock expires

A lock only holds if you close within the specified time frame. The CFPB notes that a lock may be expensive to extend if your transaction needs more time. The Regulation C commentary quoted above also anticipates that a rate may be reset when a lock agreement expires.

Before you lock, ask:

• “What if my closing is delayed and the rate lock expires?”
• “Is a shorter or longer rate lock available, and at what cost?”
• “If I lock my rate, are there any conditions under which my rate could still change?”

Timing your lock with your preapproval and closing date reduces the risk of paying for an extension. For costs at closing, see closing costs explained.