Unlocking the Rate Lock Mystery

Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

Unlocking the Rate Lock Mystery


Everyone who has financed a home with a mortgage, either for a purchase or refinance, has probably struggled at some point during that transaction with the dilemma of locking or floating the interest rate.  This critical decision does one of two things:


  1. Commits both the borrower and the lender to a specific interest rate for a set period of time.  This “for better/for worse” proposition means that if rates move up or down, the commitment cannot be broken.  This action is known as “locking” a rate.
  2. Leaves the interest rate open to future market fluctuation, again for better or for worse, until the rate is locked.  This is known as “floating” the rate.

Because I am no better a forecaster of market events than anybody else (although I would argue I am more informed about forces that can influence mortgage rates --- after all, that is part of my job), the scope of this article will not be to advise you on what to do with your loan in process.  Rather, I hope to provide a primer on the mechanics of rate locks, some insight into important facts to consider and also some perspective on how to make an informed decision and perhaps sleep a little easier knowing that you have done the best you can considering the things you do control.  Let’s get started on the lock process itself.


What Is a Rate Lock?

Simply, a lock is a transfer of risk from you to the lender.  “Wait, what?  If I’m the one making the hard decision, aren’t I taking all the risk?”  Not exactly --- there is equal risk on both sides of the transaction.  When you are floating your rate, you are at risk that interest rates could move higher and this can have real consequences for you; a higher monthly payment, risk of no longer qualifying, etc.  But when a lender makes a commitment to lend money at a certain rate, they must also do so regardless of what happens day-to-day on the financial markets.  If rates drop one-half percent during the time you are in process, for example, the lender now has a very high risk that the lock could be broken.  It’s not that the lender doesn’t want you to get a great rate, it’s that the lender has already secured funds to deliver your lock on the banking level.


In short, rate locks are commitments.  And breaking commitments on either the consumer or bank side has consequences.  You may have noticed that longer lock periods such as 45-day or 60-day locks have pricing that is relatively worse to the consumer than the “standard,” 30-day lock.  The reason for this is simple.  The more time included in the lock, the greater opportunity for market fluctuation and the less appealing the price to the consumer.


Should I Lock My Rate?

Since nobody can predict what will happen with rates, is it even worth it to deliberate over locking or floating?  This is a great question and perhaps the best way to address it is to assess the timing of the transaction itself.  Let’s say you are buying a home and you’ve just entered into a contract that is due to close in 30 days --- not uncommon here in California.  No matter who you are and what you’re trying to accomplish there is an 800-lb. gorilla in the lending room these days and it’s called regulation.  Regulation requires that your lender adhere to certain timing on disclosures and at the end of your process you will have a set of loan documents drawn and sent to escrow for your signing.  You can and should plan to have between 7 and 10 calendar days of your 30 days total consumed by regulatory requirements.  That is, your lock decision MUST come before these last seven or ten days.  As a result, you may be left with two business weeks’ worth of days at the beginning and middle of your transaction on which to lock your rate.


Your lender can help you assess what market-moving reports and financial events might occur during that time.  Perhaps it is a good thing that you do not have a limitless amount of time to wring your hands about when to lock.  We find that when that happens, consumers will often overthink the process and try to outsmart the market and like with stock investing, market timing usually leads to poor results.  Conversely, when refinancing a home, the element of time is more within the borrower’s control.   In these cases, the consequences of a wrong float decision can be mitigated if the market “comes back,” but we have seen time and again on this side of the desk that resolute choices on locking, once a target rate has been established and met, tend to be the best calls.  “Bottom fishing” or “playing the market” for an ever lower rate tends to backfire and worse, not having a target rate can engender stress and “analysis paralysis.”  As they say, “If you don’t have a goal, you can be sure that you'll hit it.”


What's Next?

Once you lock your rate, you can cross one other decision and action off of your list, and many borrowers find this alone to be a big relief.  After all, there will be occasions once your loan is closed where rates will move both higher and lower.  When they move up, you will be glad you are locked, and when they move down you can always consider refinancing if the analysis bears out financial efficacy.  The rate lock process does not ever need to be approached with dread, however.  By assessing the time requirements of your transaction, determining a realistic target rate at which you will feel satisfied, understanding market forces that can play upon your rate for better and worse and, most importantly, by taking resolute action when your target rate arrives, you will fare better than most.  Having watched thousands wrestle with the question, “should I lock my rate?” I can tell you firsthand that Theodore Roosevelt may just have said it best, though he was certainly not discussing a rate lock choice: “In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing is nothing.”


Lock 'em and doc 'em, 



Robert J. Spinosa
Executive Loan Advisor
NMLS: 22343 
Cell: 415-367-5959 Fax: 415-366-1590
rspinosa@rpm-mtg.com    www.rpm-mtg.com/rspinosa 
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941


LendUSA, LLC dba RPM Mortgage NMLS #1938   Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. 


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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Rob - Great explanation of how rate locks work. As to the decision itself, we leave it to our lender to explain the risk/reward to our clients, but personally, we'll usually just lock it and have one less thing to worry about unless we see a lot of volatility on the immediate horizon.

Jun 29, 2017 11:11 AM #3
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
Vice President of Mortgage Lending, Marin County

Thanks for the comments and the feature.  BTW, I am having a lot of difficulty adding pictures to my blog posts as AR will not save the changes when I upload any images.  If any of you know why this is happening or what I may possibly be doing wrong, please let me know.  I have tried Chrome and IE and same problem with both browsers.  Thank you!

Jun 29, 2017 12:20 PM #4
John Juarez
The Medford Real Estate Team - Fremont, CA

Excellent blog post, Rob. Some buyers agonize way too much about whether to lock or not lock. I cop out and tell them the lender is the professional in that area and I do not give any advice. If I provide advice about locking I suspect that I would be wrong as often as I would be right.

Jun 29, 2017 04:43 PM #5
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Hi Rob

This is a very helpful overview of rate locks, something that I suspect confuses many buyers. I do not advise them but rely on the lender to best guide them.


Jun 29, 2017 06:48 PM #6
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Rob,

Timing the market on anything is tough. Doing the best you can with what you have at the time may be the best choice. Of course, there is the gloating over lucky decisions & the fretting over unlucky ones after the fact, but predicting anything up front with certainty is impossible.

Jun 29, 2017 07:03 PM #7
Jana Holmstrup
Jana Holmstrup - VP Ops - Kings Mortgage Services, Inc. - Visalia, CA

Risk vs. Reward, love it!  I feel putting it into monthly $$ amounts usually helps... If it gets a little better, your payment might go down $15, but if we have a jump, it could increase $60.  Do ya feel lucky, kid?!!

Jun 29, 2017 07:05 PM #8
Richard Foster
Nevada Perfect Homes - Henderson, NV

With all due respect, as an RE Broker, I work for the buyer or seller, not the lender. When I recommend to my client to lock, I consider, how far out we are from close, under 30 days, 100% of the time, I recommend to lock the rate . . . If the rate goes up, the buyer is protected, if it goes down, the buyer does not have to take the risk, nope, the buyer can demand the LOWER rate, or, if the lender refuses to reduce, he/she/they can take the appraisal, pay an average of $200 and move to a new lender, give the new lender the entire package they all ready gathered, and close the loan in a little over a week or two depending on the program, and not even extend the escrow.


Sorry, a commitment that is two way is a falicy, reserved only for agents that do not know the power of the buyer to move the loan if the lender does not want to lower the rate!!! For the record, since 2003, I have only had to find the buyer a new lender once, 100% of the rest of time, if the rate dropped, the lender lowered the rate.

Jun 29, 2017 07:20 PM #9
Sam Kader
Pacific Coast Financial LLC - Seattle, WA
Real Estate and Mortgage Broker

Excellent post Rob! Thanks for sharing

Jun 29, 2017 08:07 PM #10
Drew & Christine Morgan
RE/MAX Star Properties - Belmont, CA
Belmont California Real Estate

Good overall assessment IMHO. I think that's a great article to pass along to buyers struggling with this issue. Thanks!

Jun 29, 2017 09:01 PM #11
Anna Hatridge
Goodson Realty - Farmington, MO
Missouri Realtor with Goodson Realty

Congratulations on the feature!  Great explanation.

Jun 30, 2017 03:06 AM #12
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL Real Estate GRI, SRES,GREEN,PSA

This great explanation on rate lock is a great share.

Buyers would benefit from knowing this and it would help them to make a decision of to lock or not to lock.

Jun 30, 2017 05:46 AM #13
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I remember this came up for me decades ago and I was in agony over it...Pay more now or take your chances? It definitely upped the game a notch

Jun 30, 2017 06:34 AM #14
John Dotson
Preferred Properties of Highlands, Inc. - Highlands, NC - Highlands, NC
The experience to get you to the other side!

If you can remember when interest rates were in the 20's, almost anything now is "free money."  For long term, I say LOCK IT!

Jun 30, 2017 07:22 AM #15
Greg Mona
RE/MAX Platinum Living - Scottsdale, AZ
YOUR Local Real Estate and Design Resource in AZ!

This is a question that comes up from time to time with our buyers.  As some have already written, it is probably best to defer that question to their lender.  Of course, the lenders we typically refer out all say they wouldn't lose a loan over 1/4 point, so even if the buyer locks in, then the rate goes down, in most cases they would adjust accordingly for the buyer versus losing them to another lender.

Jun 30, 2017 08:18 AM #21
Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Rob Spinosa 
I always enjoy learning from you.
Thanks for a very thorough explanation: the process of LOCKING A RATE very straightforward - a Locked Rate is a commitment. Your explanation is excellent - commitments are commitments and breaking one has its own consequences.
All the best - Lynn

Jun 30, 2017 11:41 AM #22
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

Congratulations on the feature - I thought you explained this decision very well, in plain English.

Jun 30, 2017 03:49 PM #23
Dana Basiliere
Rossi & Riina Real Estate - Williston, VT
Making deals "Happen"

My buyer clients sometimes ask me for advice on rate locks. I cannot (should not) tell them what they should do however I advise that if the rate in front of them is acceptable or even desirable it might be wise to grab it.  As you say one less decision hanging over their heads in a big process. 

Jul 01, 2017 05:28 AM #24
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

The buyer is betting one way or another. Paying money to keep it locked or not paying hoping it won't go up.

Jul 01, 2017 05:29 PM #25
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH

Thanks for educating us on ratelock mystery!!!

The more time included in the lock, the greater opportunity for market fluctuation and the less appealing the price to the consumer.

Jul 03, 2017 06:24 AM #26
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

This is a GREAT explanation of the rate lock and it's potential pitfalls!

Thanks for sharing Rob Spinosa as this is very helpful.

Jul 05, 2017 08:31 PM #27
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
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