As mortgage rates climb, one big thing homebuyers should consider doing now

Mortgage rates will likely rise throughout 2022, many experts predict. Indeed, both Holden Lewis, home and mortgage expert at Nerdwallet, and Jeff Ostrowski, Bankrate.com analyst, say that rates will likely continue to rise even this month. “It’s clear that the strong upward pressure will continue this year,” concludes Realtor.com’s senior economist George Raitu. (See the lowest mortgage rates you can qualify for here.)

Given the general consensus that rates are on the rise, you may be wondering how you can lock in a good mortgage rate. One option: a mortgage rate lock. A mortgage rate lock essentially puts a hold on an interest rate between the time a home buyer makes an offer and closes their escrow, assuming specified timelines are met and application changes aren’t made.

A mortgage rate lock can protect you from rising rates

Indeed, Ostrowski says mortgage rate locks likely make sense for most buyers now. “The benefit of a mortgage rate lock is that it protects you from market fluctuations. If your lender locks in your rate at 4.5% for 45 days and the rates jump up to 4.75% within that period, you’ll still get your loan at a lower rate,” says Ostrowski. And LendingTree’s senior economic analyst Jacob Channel agrees that now could be a good time to get a rate lock. “Rates are already higher than most predicted they would be … and while it’s impossible to truly know the future, there’s a chance they could rise even further in the coming months,” says Channel. 

The biggest upside of a rate lock is that you can use one to secure a lower rate on your mortgage. A rate lock offers peace of mind to both the borrower and the lender — the borrower doesn’t have to sweat moves in mortgage rates while worrying about other details of the loan, and the lender doesn’t have to fret that the borrower will back out of the deal in the event of a spike in rates. “There’s no real disadvantage as lenders don’t typically charge anything for a rate lock,” says Ostrowski. (See the lowest mortgage rates you can qualify for here.)

Things to consider before getting a mortgage rate lock

But, of course, there are a few catches. First, you often must be under contract to buy a specific property before you can lock an interest rate on the mortgage, Lewis says. “The timing of the rate lock depends on what type of risk you feel comfortable taking. If you lock as soon as you can, you risk kicking yourself if rates go down, but if you don’t lock in a rate, you risk an increase in rates that could increase your monthly payments, maybe even past affordability,” says Lewis. 

And if rates fall, you may still be locked into the initial higher rate you agreed upon. “While not every lender can offer this, a float-down agreement will lock in a current rate with the ability to lower it if the rates drop. This can be extremely valuable in a volatile mortgage rate environment,” says Robert Heck, vice president of mortgage at digital mortgage marketplace Morty. Float-down rates can cost cost roughly 0.5% to 1% of the total loan amount, in addition to any fee associated with a mortgage rate lock.

And there’s often a caveat for rate locks that last longer than 30 days.  “Locks between 60 and 90 days can be costly [and you] can expect to pay anywhere from 0.25% to 0.5% of the total value of your mortgage in fees,” says Channel. But some lenders offer 30-day locks for free. The lender may charge a rate lock fee or quote you a slightly higher interest rate to initially lock in for longer than 30 days.

How to get a mortgage rate lock

The best way to get a mortgage rate lock is to contact your lender and ask whether or not you qualify for one. If you do qualify, make sure you understand what the specific terms of the lock are and how much it will cost you. “Your loan officer or mortgage broker should present the option [of a rate lock] to you. It’s standard practice for lenders to offer rate locks. Every lender has their own process for locking in your mortgage rate once you receive a quote,” says Ostrowski. 

As for the actual process of getting a lock, Lewis says, “It won’t be complicated or time-consuming.” You can also get pre-approved, which puts you on the path toward locking in a rate. Just remember that “getting pre-approved doesn’t necessarily lock you into that rate, as your choice of mortgage may change as you get further along in the process and affect the rate and structure of the loan you end up locking,” says Heck.