When Is the Best Time to Lock in a Mortgage Rate?

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Big-ticket purchases are prone to freak us out. Simply put, the stakes are higher. And since a home is the most expensive purchase many of us will ever make, it's important to do whatever’s in our power to ensure a fair deal. To do this, you have to look far beyond the price on the for sale sign. In fact, the mortgage rate can make or break your budget, so knowing when to lock in a good rate is crucial to your bottom line.

Shopping for a mortgage typically plays out like this: You scope out a slew of lenders for the most favorable interest rate and apply to the lender offering the best terms. But by the time you reach the point of settlement, it’s not uncommon that several weeks or even months will have gone by. Will you still receive the terms you bargained for? The answer depends on several factors. The mortgage rate you are quoted is typically only guaranteed at the time of the quote. It’s possible that by the time the settlement’s ready the rate will have jumped, maybe even so high that you can no longer afford to purchase a home. Fortunately, you can avoid such an unwelcome surprise by locking in your rate so it doesn’t increase while your loan is being processed.

So why doesn’t everyone lock in the rate on their mortgage? First of all, not all lenders offer lock ins. And many that do charge a fee. Lock ins also commonly come with expiration dates, typically ranging from a few weeks to 60 days, and it can be difficult to forecast whether you’ll be able to find the home you want and get your offer accepted within that time frame. It’s also important to understand that locking in your rate comes at a risk. Unless your lender is willing to honor any lower rates that may become available while your loan is processing, a lock in could prevent you from scoring an even better deal than the one you started with.

Truly, there’s no perfect timing. But there is a bit of strategy when it comes to choosing when to lock in your mortgage rate. Read on for our roundup of the best times to execute a lock in, depending on your financial and situational needs.

See all the benefits of locking in your mortgage rate today:

As Soon as You Get a Quote for a Rate You Can Afford

If you’re on a tight budget and the possibility of even the smallest hike in your quoted mortgage rate could push your dream of homeownership out of reach, it’s best to lock in a rate as soon as you find one you know you can afford. Consider basing the decision of whether to pursue a short- or long-term lock in based on the answer to the one question every home hunter should ask their lender: Approximately how long will it take to finalize my loan?

Longer rate locks generally tend to make sense for folks who are building a new home or planning to buy one in foreclosure, since the legal process behind those types of deals tends to take longer. It’s also wise, particularly if you’re considering a long-term lock-in, to inquire about the availability of adding what’s commonly called a “float down provision” to your lock in agreement. This provision allows you to take advantage of lower rates, should they drop while you’re locked in to the rate you were first quoted.

“I just wanted a rate under 4 percent, so I locked in immediately when I got there,” said Erica Howell, a 27-year-old first-time homeowner from Portsmouth, N.H. “It’s a gamble to lock in so early because the rate very well could go down, but it also could go up. But I trusted my lender to know the market and I trusted my instinct that I needed a rate under 4 (percent). I got it and I grabbed it and I never looked back.” 

Upon Approval of the Loan

Choosing to lock in your mortgage rate after you’ve been approved for the loan can be smart if a heavy demand for housing is slowing down the loan application approval process at a time when rates appear to be trending down. This strategy allows you to reap the benefit of any lower rates that may surface while you’re waiting for your loan application to be finalized and saves you from wasting part of the duration of your lock in on waiting for the loan approval. “As soon I got approved, I locked in my rate,” said Kelly Dibble, who purchased a one-bedroom apartment in Stamford, Conn. in 2014. “I wanted to lock in as soon as possible because it was one less thing to worry about, but my lender suggested I wait until I got approved. I trusted that advice and I think it worked out well for me.”

After You Sign a Purchase Agreement

The situation you want to avoid is having the clock ticking on your lock in before you’re ready to make an offer on a home. A situation like that can compound the pressure you’ll feel to quickly find a home that’s truly a good fit for you — and that can potentially lead to hasty decision making and down-the-road buyers’ remorse. Alas, you can dodge such problems by waiting to lock-in your rate until after you sign a purchase agreement. “It’s a sellers market right now in San Diego, so we knew it could take a long time for us to find a place that worked for us,” said Karin Pipczynski, who purchased a two-bedroom home with her boyfriend in March. “We didn’t want to feel rushed, so we locked in as soon as we signed the purchase agreement and that saved us from what I saw as a gamble.”

When would you suggest locking in a mortgage rate for a home purchase?