Should I Lock My Mortgage Rate Today?

Deciding when to lock your mortgage rate may be one of the most expensive decisions of your life. If you don’t lock and interest rates rise, you could end up paying thousands of dollars more over the life of your loan. If you do lock and interest rates fall, you could miss out on major savings.

Key Takeaways

  • Closing your rate quickly can help you close your loan on time. 
  • Failing to lock your rate will delay your closing. If you miss your closing deadline on a home purchase, you could lose that home. 
  • Rates are projected to rise throughout 2022, so closing sooner will likely get you a better rate. 
  • Mortgage rates are affected by dozens of variables, and nobody can accurately predict what they will be. 

How Mortgage Rates Work

A mortgage rate is the interest rate you pay on your mortgage. Rates generally rise and fall throughout the day by a fraction of a point and can rise and fall by several points over the course of a year. With a long enough timeline mortgage rates can change drastically.

Rates Over Time

In 1981 the average 30-year mortgage rate was 16.63%. Thirty years later in 2021, the average rate was 2.96%.

Deciding When to Lock Your Rate

Making the decision on when to lock your rate can be very difficult. You can spend hours reading news reports, data on the bond yield curve, analyses of inflation rates, job market growth, memos from the Federal Reserve, and still wind up feeling even less certain of when to lock in your interest rate than when you started. 

One large natural disaster, impactful day on the stock market, or terrorist attack can change mortgage rates significantly, and these can be hard to predict. As of March 2022, rates are rising and are expected to continue to do so. Without a crystal ball, predicting a future mortgage rate is much like predicting the value of a specific stock. An educated guess is that rates will be lower in March 2022 than they will be several months from now, as the Federal Reserve is expected to raise rates again. If you are considering purchasing a home or refinancing a mortgage, locking your rate in the near future is likely to save you the most money.

If you’re actively shopping for a home, keep in mind that the current real estate market is very competitive. Many accepted offers include a short timeline for closing, and locking your rate quickly helps you close on time. If you delay locking your rate you may miss your deadlines and could potentially lose out on your home. In this situation, locking as quickly as possible is advisable.

What if Rates Fall After I Lock?

If rates fall after you lock your rate you still have options. You may be able to stop the process with your current lender and start over with a different lender to lock in a lower rate. If you’ve paid any appraisal fees to the first lender, you’ll still have to pay them with the second. Starting over with a new lender may also delay closing, which could mean losing out on your house if it has a strict closing deadline, and will mean you wasted your first lender’s time. Some lenders even charge additional fees if you cancel the process, so make sure you check for fees before deciding to start over for a lower rate.

What Role does the Federal Reserve Play?

The Federal Reserve plays a significant role in determining your mortgage rate. While they don’t set mortgage rates directly, they do set the federal funds rate. The Fed meets eight times a year and mortgage rates change both in anticipation of what the Fed will do and in reaction to what the Fed actually does. The Federal Reserve has started raising rates with the most recent rate hike occurring on March 17, 2022, with more expected this year. This rate increase has already had an impact with mortgage rates climbing, and with suspected future increases, is expected to continue to cause them to rise.

What Happens if I Never Lock my Mortgage Rate?

You eventually will have to lock your mortgage rate or you won’t be able to close on your loan. Your lender is required to give you closing disclosures within certain timelines that detail your rate and closing costs. Your lender can’t prepare an accurate closing disclosure if you don’t lock your interest rate. If you delay locking your rate, you may end up with a much higher interest rate if rates rise. If you’re close to the limit of your budget then a higher interest rate may actually make you ineligible for your loan.

The Bottom Line

Choosing when to lock your mortgage can be an excruciating process for those of us who over-analyze everything. Almost every major event can and will affect mortgage rates and cost, or save home buyers thousands of dollars. As of March 2022, locking your rate sooner than later is likely to give you the best interest rate as the Federal Reserve is expected to raise rates several more times this year if the job market continues to stay strong.

Article Sources

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  1. Freddie Mac. “30-Year Fixed-Rate Mortgages Since 1971."

  2. Bloomberg. "Fed Lifts Rates a Quarter Point and Signals More Hikes to Come."

  3. Board of Governors of the Federal Reserve System. "Federal Open Market Committee Announces its Tentative Meeting Schedule for 2022."

  4. Board of Governors of the Federal Reserve System. "Implementation Note issued March 16, 2022."