When you lock in a rate on your mortgage application, you receive protection against interest rate increases for a period of time -- 30, 45, 60 or 90 days -- to ensure that you don't pay a higher rate prior to closing. In most cases, you won't benefit if the published interest rate drops below your guaranteed rate.
Benefitting From a Lower Interest Rate
Some rate locks offer a one-time option, allowing the borrower to select a new published rate during the protected lock period. Theoretically, you could even choose a higher rate, although you would be unique among mortgage loan borrowers. Should you have this provision, however, and the rate declines during the lock period, you could exercise your option to select the lower rate. Before you agree to a rate lock, ask your lender if they offer this option and learn its cost, if any. Unfortunately, these options have become rare, but it doesn't hurt to ask.
Unless your lender offers automatic free rate locks, your interest rate will "float" with the market, if you do nothing. If you neglect to lock your rate, it could change daily in fluctuating markets. Floating rates bring you the risk of increasing rates or the reward of declining interest market rates. Should you select float, your rate is typically finalized within 48 to 72 hours prior to your scheduled mortgage closing. Your interest rate will then often be "locked" for 7 to 10 days to allow for last minute closing postponements or delays.
Lock Options for Rate Declines
Should the rate decrease during your rate lock period, you have limited options. You might advise your lender you want to forfeit your lock, may not be possible. If possible, it will come with a cost, which might be prohibitive. You could allow your rate lock to expire and re-lock, if allowed, hoping for the lower rate to still apply. This can be quite risky, however. Remember, taking this action also generates more cost, as you'll often need to pay for the new rate lock.
Lenders Not Flexible With Rate Locks
While you may be disappointed that your lender refuses to allow any modifications to your rate lock, there are excellent reasons that eliminate lender flexibility. When you lock a rate properly -- receiving a written rate lock document from the lender (not a mortgage broker) -- the lender has committed to deliver your loan to the secondary market at a specific price (rate) by a particular date. This is a legal commitment, not a "maybe." The only option you lender has is to deliver a similar mortgage, including amount and rate. This reality makes it very difficult for a lender to be flexible with changing or terminating your rate lock option.