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• June 06, 2022

How and When to Lock in Your Mortgage Rate

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If you’ve been shopping around for a new mortgage or are looking to refinance your current one, you will have probably noticed that interest rates are constantly changing. Because mortgage loans are often so large, even a slight increase in interest rates can significantly increase your borrowing costs. This is why a mortgage rate lock is something to consider.

A rate lock does exactly what the name implies —it is an agreement between you and the mortgage lender to lock in an interest rate for your mortgage at the pre-approval or approval stage. Now, more than ever, a rate lock is an essential tool. The era of historically low-interest rates is coming to an end ––so far in 2022 we are seeing interest rates begin to rise, with an expectation that they will continue to do so. With rates rising, a rate lock allows you to lock in a lower rate than if you were to wait.

We’ll be covering everything you need to know about rate locks in this blog. Keep scrolling to learn:

  • What a rate lock is
  • The benefits of a rate lock
  • When you can lock in a rate
  • How to lock in a rate
  • How long interest rates can be locked
  • What happens when interest rates drop after a rate lock
  • What happens when a rate lock expires
  • If you can change mortgage lenders
  • If you can lock in a fixed rate from a variable

What Is a Rate Lock?

Simply put, a mortgage rate lock is an agreement between yourself (the borrower) and the mortgage lender to lock in the interest rate at a given time.

So, why lock in your rate? Well, as mentioned above, rates are constantly fluctuating —if the rates are rising, this means the rate at the time of approval could be quite a bit higher at the time of issuance. This will increase your monthly mortgage costs and even affect how much you can borrow to purchase the home.

The Benefits of a Rate Lock

Mortgage rate locks can be extremely beneficial. They offer peace of mind allowing you the ability to budget accurately, which can be difficult when rates are constantly fluctuating. When your rate is locked in you will have a much better understanding of exactly how much you can borrow to purchase a home and what your monthly mortgage costs could be. 

A rate lock also helps to protect you from rising rates which could potentially save you thousands of dollars in mortgage costs. 

Let’s show you how through an example:

Jane Doe was on the hunt for a home. She knew that rates fluctuate and was nervous that they could rise by the time she closed on the sale of her dream home. Jane was comfortable with the interest rate at the time of 2.9%, so she decided to get pre-approved to lock in the rate. It was good that she did this because two months later, when the sale finally went through, and the mortgage was issued, the rate had jumped up to 3.5%. Her mortgage amount was $500,000 over a 5-year term ––by locking in the lower rate, she saved more than $9000 over the 5 year term, lowering her monthly mortgage costs by $155.70.

When Can I Lock In My Mortgage Rate?

Depending on the lender, you are able to lock in your mortgage rate at the time of approval or pre-approval. It’s recommended that you apply for a pre-approval to lock in your rate before you start your home buying process.

How To Lock In A Rate

You can contact lenders directly to do this, or you can work with a mortgage broker who will do the heavy lifting for you.  They will shop the market to find the lender offering the best rate for you at that time, then if you qualify, they will obtain an approval letter for you and lock in the rate.

How long can interest rates be locked in for?

Mortgage rate locks don’t last forever. The amount of time varies depending on whether the mortgage is for a new purchase or a refinance. For a new purchase, rate locks typically last 60 to 120 days. When it is a refinance, rates are commonly locked in for 60 to 90 days depending on the lender. This gives you plenty of time to close on the sale of your home or refinance your mortgage once you have locked in your ideal rate.

What happens if my rate lock expires?

As mentioned above, there is a limit to how long you can lock in your rate. However, closing on the purchase of a home can often take longer than expected, which may cause you to need the interest rate to be locked in longer than the time initially prescribed when you initially locked in your rate. If this happens, you can request that the lender extend the rate lock for you. They may agree to do this for you for free or for a fee. Your mortgage broker can help you determine if this is the best option based on the current market conditions. 

What happens if the interest rates drop?

Let’s face it, interest rates fluctuate, sometimes multiple times a day. This makes them somewhat unpredictable ––even after a rate lock, interest rates can drop. Luckily in most cases, if the interest rates have fallen, mortgage lenders will abandon the rate lock and provide you with the current, lower rate. A mortgage broker makes this process much more straightforward ––they have great relationships with lenders that they can leverage to get you that lower rate.

Can I change mortgage lenders after a rate lock?

Yes, you can! Getting approved for a mortgage and locking in your rate with a lender does not mean you are obligated to go with them. If rates change, causing another lender to be a better option, the mortgage agent will help you lock in a rate with them instead.

Can I lock in a fixed rate if I have a variable?

Yes! As mentioned above, a mortgage rate lock doesn’t just have to be for new purchases. You can lock in a rate after being approved for mortgage refinancing as well. So, if you have a variable rate mortgage but are seeing signs that interest rates will rise, you have the opportunity to switch into the current low interest rate for a fixed term mortgage that will allow you to hold on to it.

Want to learn more about mortgage rate locks or get help securing one? Reach out to us at Pineapple ––our mortgage brokers are experts in all things mortgage, bringing a depth of knowledge and fantastic customer service to help put you at ease during the homebuying process. At Pineapple, we work with Canada’s leading lenders, giving us a holistic view of the market, which allows us to do the shopping for you. We can help you find the best rate and keep it with a mortgage rate lock.

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