Most lenders provide rate locks that are good for 30-90 days. Although locking in an interest rate can save you money, there are some important things to keep in mind. For example, if you lock in your rate too early in the mortgage process and the rates go down, you may not be allowed to "unlock" your rate.
How long does a mortgage rate lock last? Your mortgage rate hold period varies between lenders, typically 30 to 120 days. However, some lenders may provide rate holds extending to 130 days (new mortgage at BMO), 150 days (new mortgage at nesto), or 180 days (existing mortgage at Scotiabank and Desjardins).
Can the interest rate change after locking? After locking, the lender may still increase your interest rate and fees if you change your application. For example, the following changes could affect your rates. The loan type or terms change.
What is Rate Lock? Fixed rates are subject to change up until funding. 'Rate Lock' is an optional feature that allows you to lock in your reference interest rate on new Fixed Rate home loan and Fixed Rate Investment home loan applications for 90 days for a non-refundable fee, charged per fixed rate loan account.
Borrowers can cancel the Rate Lock application before drawdown and/or if the loan does not proceed to settlement. However, once the Rate Lock fee becomes payable it is non-refundable and will be debited from the nominated account. The Rate Lock fee will not be charged if NAB does not approve the loan.
To break a fixed-rate term, you'll pay an Interest Rate Differential (IRD) penalty or a 3-month interest charge, whichever is higher. Unless you have little time left in your term, you'll likely pay the higher IRD penalty. A variable-rate mortgage is cheaper to break— you'll only pay a 3-month interest penalty.
Can you change mortgage lenders after locking your rate? A rate lock doesn't lock you into the deal. If you find better terms and lower closing costs from another lender, you can opt to go with that lender after your rate lock with the first lender begins.
When you lock your interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called "repricing" your loan.
Generally, once you've locked in a mortgage rate, the terms are fixed and usually cannot be renegotiated. However, some lenders offer a float down option, allowing you to negotiate mortgage rates if market conditions shift favorably during the rate lock-in period.
Since it's impossible to know for certain if interest rates will rise or fall while you're closing on your home, here's when it makes sense to lock in your mortgage rate. A mortgage rate lock can protect you from rising costs during the closing process.
IRS Rule: When a buyer purchases a new home with cash, the IRS provides a 90-day window after the purchase to take out a mortgage for it to be considered acquisition indebtedness. Mortgages applied for after this period are considered home equity indebtedness with stricter deductibility limits.
How Much Are Rate Lock Extending Fees? Rate lock extension fees vary based on the lender and loan terms. Typically, the fee is a percentage of the loan amount or a set fee per day or week of the extension, ranging from around 0.25% to 0.375% of the loan amount. Some lenders may charge a flat fee, such as $500 per week.
The main advantage of a fixed mortgage rate is that, whether interest rates go up or down during the term, your rate and regular payments would stay the same for the term selected. You can select a term length of 6 months, 1 year, 2 years, 3 years, 4 years, 5 years, 6 years, 7 years, or 10 years.
However, lenders are allowed to change some costs under certain circumstances. If your interest rate is not locked, it can change at any time. Even if your interest rate is locked, your interest rate can change if there are changes to your application information or if you do not close within the rate-lock timeframe.
You can back out of a mortgage rate lock, but there are consequences. Backing out of a rate lock means giving up the application you've put time and money into. You'll have to start your mortgage application over from the start, and you'll likely have to re-pay fees like the credit check and home appraisal.
Term Loan Extension Fee: Sometimes this is in an amount equal to 0.30% of the outstanding principal balance. Sometimes this is an arbitrary number, and sometimes there is no loan extension fee at all. Examples are: a fee equal to three-twentieths of one percent (0.15%)
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023 before descending somewhat in 2024. Many experts and industry authorities believe they will follow a downward trajectory into 2025. Whatever happens, interest rates are still below historical averages.
If you're switching because interest rates have dropped, you don't have to worry about this. But in other scenarios, if you've locked in a rate with your current lender, the new lender isn't bound by that agreement, which could result in a higher interest rate.
A float-down option gives borrowers the opportunity to take advantage of lower interest rates if you've already locked your mortgage rate. Lenders have rules regarding how and when you can use the option to float the rate down. Most lenders charge a fee, which is usually a percentage of your loan amount.
Rate locks usually range from 30 to 90 days. Ask your Home Lending Advisor when they expect you'll close and plan accordingly.
If mortgage rates increase after you've locked in the rate, you still get to keep your lower rate. If you want to buy before the end of 2024, locking in a rate could be a good idea. But rates should gradually decline in 2025, so if you're in no hurry, you may prefer to wait.
How much is an early repayment charge? An early repayment charge is usually between 1% and 5% of what you still owe on your mortgage agreement. You might be able to pay less if you have been with your lender a long time, but this is up to the lender. You can choose to pay your early repayment charge in one lump sum.