The Essential Guide to Mortgage Rate Locks
The decision to lock your mortgage rate is one of the most critical steps in the home-buying process. It is your only protection against rising interest rates in a volatile market. This guide will walk you through what a rate lock is, when you should act, and how to protect your investment here in the Kansas City Metro and the greater Midwest.
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1. What is a Mortgage Rate Lock?
A mortgage rate lock (or “rate commitment”) is a formal agreement between you and the lender to guarantee a specific interest rate and points for a set period of time. This is done while your loan is being processed and is typically recorded on your Loan Estimate.
The primary purpose of a rate lock is to protect you from market fluctuations. If rates rise during the 30-to-60-day period between application and closing, your guaranteed lower rate remains unchanged.
What is included in the lock?
A complete rate lock guarantees four key elements:
- Interest Rate: The core percentage used to calculate interest.
- Discount Points: Funds paid upfront (usually 1% of the loan amount per point) to reduce the interest rate.
- Lock Period: The number of days the rate is held (e.g., 30, 45, 60 days).
- Loan Product: The specific loan type the lock applies to (e.g., 30-Year Fixed Conventional, FHA, VA).
2. Lock vs. Float: Understanding Your Risk
As a borrower, you have two primary strategies before closing: locking the rate or floating it.
| Strategy | Market Assumption | Risk/Reward |
|---|---|---|
| Lock (Commitment) | Rates are expected to rise or stay stable. | Risk Aversion: Protects against increases, but you miss out if rates fall. |
| Float (Wait) | Rates are expected to fall, allowing you to secure a lower final rate. | Higher Risk: You gain from rate drops, but you are exposed to sudden, costly increases. |
This decision involves market analysis and personal risk tolerance. You can find our in-depth analysis on this topic here:
When is the optimal time to lock in your mortgage rate?
3. Lock Periods: Choosing the Right Duration
The length of your rate lock should always align with your closing timeline. If your lock expires before closing, you will be subject to the current, potentially higher, prevailing market rate at that time.
| Lock Period | Typical Scenario | Pricing Factor |
|---|---|---|
| 30 Days | Fastest processing, cash buyer, or refinance. | Usually offers the lowest rate or fewest points. |
| 45-60 Days | Standard home purchase requiring a quick closing. | Most common balance of protection and cost. |
| 90+ Days | New construction, complex refinances, or custom loans. | Comes with a higher interest rate or an upfront fee due to the lender’s extended risk. |
What if my lock expires?
If your closing is delayed and your lock period expires, your lender will typically offer a rate lock extension for an additional fee. This fee is often a percentage of the loan amount and is charged to compensate the lender for their risk in the changed market.
Read our article about potential rate change: What happens if my closing is delayed?
4. The Float-Down Option (Protection Against Falling Rates)
One of the main drawbacks of locking is the potential of missing out if rates decline. The **Float-Down** option is an add-on feature that eliminates this risk.
A float-down clause allows you to re-lock your rate one time at a lower prevailing market rate if rates fall below your locked rate by a pre-determined margin (e.g., 0.25% or 0.50%).
- Cost: This benefit is not free. It is typically purchased upfront with a small fee (often a fraction of a point) that is included in your closing costs.
- Benefit: It provides the peace of mind of a locked-in maximum rate while retaining the flexibility to capitalize on favorable market movement.
5. Why a Locked Rate Can Still Change (The Fine Print)
A rate lock is a guarantee, but it is contingent on the information on your initial application remaining stable. Any significant change to your profile can void the rate lock and require re-pricing.
The most common changes that can affect your locked rate include:
- Credit Score Drop: If your score falls below a certain threshold required for the loan program.
- Change in Loan Program: Switching from a Conventional to an FHA loan, or changing the loan term.
- Down Payment Change: If your down payment amount or cash reserves decrease.
- Appraisal Value: If the home appraises lower than expected, which can change the Loan-to-Value (LTV) ratio.
Crucial Tip: Maintain your financial profile exactly as it was when you applied until your loan closes. Read our article on how changes to your profile affect your rate: How changes to my credit score could affect my final rate.
6. Ready to Lock? Your Next Steps
In the Kansas City market, where housing inventory and sales velocity are high, having a confirmed, locked rate is a massive advantage. Our local advisors work directly with you to decide the optimal time to lock based on your closing date and our expert market forecasts.
Don’t Leave Your Rate to Chance.
Take the next step toward a secure closing by requesting a custom consultation with a local expert.
*Metropolitan Mortgage is a local, licensed lender in Kansas and Missouri (NMLS #227722). We are here to serve the Overland Park, Kansas City, and greater Midwest communities.