Should You Lock Your Mortgage Rate or Wait? Here Is How to Think Through It

"Should I lock my rate now or wait to see if rates come down?"

This is one of the most common questions I hear from buyers once they are under contract — and it is one of the hardest to answer, because the honest answer is: nobody knows where rates are going.

What I can tell you is how rate locks actually work, what your options are, and how to think through the decision based on your specific situation rather than trying to time the market.

What a Rate Lock Actually Is

A rate lock is an agreement between you and your lender that guarantees a specific interest rate for a defined period of time — typically 30, 45, or 60 days, though longer lock periods are available.

Once you lock, your rate is protected from increases during the lock period. If rates go up after you lock, you keep the lower rate. If rates go down, you are generally stuck with the rate you locked — unless you have a float-down option (more on that below).

Rate locks are not free. The cost of a lock is built into the rate you are offered. Longer lock periods typically come with a slightly higher rate than shorter ones, because the lender is taking on more risk by guaranteeing your rate for a longer window.

What Happens If You Do Not Lock

If you choose not to lock — a position called "floating" — your rate will move with the market until you decide to lock or until you are close enough to closing that you must lock.

Floating makes sense if you believe rates are likely to decrease before your closing date and you are willing to accept the risk that they might increase instead. It is a bet, and like any bet, it can go either way.

Most buyers are not in a position to absorb a significant rate increase. A 0.25% increase on a $700,000 loan adds roughly $115 to your monthly payment and more than $41,000 in total interest over 30 years. That is a meaningful financial consequence for a bet that may not pay off.

How Long Should Your Lock Period Be?

The right lock period depends on your closing timeline.

A standard purchase transaction in California typically takes 30 to 45 days from contract to close. If your contract is signed and your closing date is set, a 45-day lock usually provides enough cushion for a normal transaction.

However, there are situations where a longer lock makes sense:

• New construction purchases, where the completion date may be uncertain
• Complex transactions involving multiple parties, estate sales, or short sales
• Transactions where the borrower's documentation is complex and underwriting may take longer
• Any situation where you have reason to believe the closing might be delayed

A 60-day lock costs slightly more than a 45-day lock, but it provides insurance against delays. If your transaction is straightforward and your closing date is firm, the shorter lock is usually the better value.

What Is a Rate Lock Extension?

If your closing is delayed and your lock period expires before you close, you will need a rate lock extension. Extensions are available, but they come at a cost — typically 0.125% to 0.25% of the loan amount per week of extension, depending on the lender and market conditions.

On a $700,000 loan, a one-week extension at 0.25% costs $1,750. A two-week extension costs $3,500. These costs add up quickly if a transaction drags on.

The best way to avoid extension fees is to lock for a period that realistically covers your closing timeline, including a reasonable buffer for unexpected delays.

What Is a Float-Down Option?

A float-down option is a provision that allows you to lower your locked rate if market rates decrease by a specified amount before closing. It gives you some protection against locking in a rate that turns out to be higher than what was available at closing.

Float-down options are not free — they typically add 0.125% to 0.25% to your rate, or they come with a fee. And they have conditions: the rate must drop by a minimum threshold (often 0.25% or more) before the float-down kicks in, and you must request the adjustment within a specific window.

Whether a float-down option is worth it depends on how much you are paying for it and how likely you think a meaningful rate decrease is before your closing. In a stable or rising rate environment, you are paying for protection you may never use. In a volatile or declining rate environment, it can be valuable.

Ask your loan officer whether a float-down option is available and what it costs. It is worth understanding before you lock.

Discount Points: A Related Decision

When you lock your rate, you will also be deciding whether to pay discount points to buy down your rate. One discount point equals 1% of the loan amount and typically reduces your rate by 0.25%, though the exact relationship varies by lender and market conditions.

Paying points makes sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments. The break-even calculation is straightforward: divide the cost of the points by the monthly savings to find out how many months it takes to break even.

On a $700,000 loan, one point costs $7,000. If it reduces your payment by $100 per month, the break-even is 70 months — about six years. If you plan to stay in the home and keep the loan for longer than that, paying the point makes financial sense. If you plan to sell or refinance sooner, it probably does not.

Do not pay points simply because the rate looks better. Run the break-even calculation first.

How to Actually Make the Decision

Here is the practical framework I use with clients:

1. Know your closing timeline. If you have a firm closing date 30 to 45 days out, locking now eliminates rate risk for the most critical period of your transaction.

2. Assess your risk tolerance. If a rate increase of 0.25% to 0.50% would meaningfully affect your ability to qualify or your comfort with the payment, lock. The cost of being wrong is too high.

3. Do not try to time the market. Mortgage rates are influenced by dozens of economic factors — inflation data, employment reports, Federal Reserve policy, global bond markets, and more. Professional traders with sophisticated models cannot reliably predict short-term rate movements. You should not expect to either.

4. Ask about your options. Before you lock, ask your loan officer about available lock periods, the cost difference between them, whether a float-down option is available, and what the extension policy is. Understanding the full menu of options helps you make a better decision.

5. Consider locking when you have a rate you can live with. If the rate you are being offered today results in a payment you are comfortable with and a loan you can qualify for, locking eliminates uncertainty. Waiting for a better rate that may or may not materialize introduces risk without a guaranteed reward.

The Bottom Line

Rate locks are a risk management tool, not a market timing tool. Their purpose is to protect you from rate increases during the period between your application and your closing — not to guarantee you the lowest possible rate in history.

If you are under contract and trying to decide whether to lock, the most useful conversation you can have is with your loan officer about your specific timeline, your qualification sensitivity to rate changes, and the cost of available lock options.

Contact us or schedule a call to talk through your rate lock decision. For more on how rates affect your overall loan costs, see our article on why a mortgage is more than just the rate.

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NMLS Individual #1087365 · NMLS Company #1147207 · CA DRE #01265685. SMS Mortgage is a licensed mortgage broker in California and Colorado. Stephanie Pedley holds individual MLO authorizations in Texas through B Walters CO., LLC (NMLS #262157), Ohio through Beacon of Hope Residential LLC (NMLS #2543671), and Nevada through CASMIA HOLDING LLC (NMLS #1740673). Not a commitment to lend. All loans subject to credit approval. Rate lock availability, terms, and costs vary by lender and market conditions.