What Happens If Interest Rates Rise While I Am Under Contract?

Interest rates can change throughout the home-buying process, sometimes even daily. So what happens if you've already had your offer accepted and mortgage rates suddenly go up?

The biggest question is whether you've locked your interest rate with your lender.

What Is a Mortgage Rate Lock?

A rate lock is an agreement with your lender that generally protects your interest rate from market increases for a specific period of time, as long as you close within that timeframe and there aren't qualifying changes to your loan application.

Rate locks are commonly offered for periods such as 30, 45, or 60 days, although options vary by lender.

If your rate is locked and market rates rise, your locked rate generally remains the same.

What If My Rate Isn't Locked Yet?

If you haven't locked your rate, it can change before closing.

A higher interest rate means a higher monthly principal and interest payment. It can also affect your purchasing power because your lender qualifies you based partly on the monthly payment you can afford.

This is why I want buyers communicating closely with their lender once we're under contract.

Can My Rate Change Even If It's Locked?

There are situations where a locked rate may still change.

Changes to your loan amount, down payment, credit score, verified income, loan program, or certain property details may affect the original terms of your loan.

Your rate lock also has an expiration date. If closing is delayed beyond that date, you may need a rate lock extension, which can sometimes come with an additional cost.

What If Rates Drop After I Lock?

A rate lock protects you when rates increase, but it doesn't necessarily mean you'll automatically receive a lower rate if the market improves.

Some lenders offer a "float-down" option that may allow you to take advantage of a lower rate under certain circumstances. Policies vary, so this is a great question to ask your lender before locking.

Could Rising Rates Affect My Purchase?

Potentially.

If your rate isn't locked and rates increase enough, the resulting payment could affect your loan qualification or simply make the payment higher than you're comfortable with.

Whether you have contractual protections if financing changes depends on the terms and deadlines in your purchase agreement. This is another reason your financing contingency and communication with your lender and real estate agent are so important.

Ask About Your Rate Early

When I'm helping a Kitsap County buyer, I don't try to predict exactly what interest rates will do next. Instead, I want the buyer and lender to have a plan.

Ask your lender when you can lock, how long the lock lasts, whether there's a cost to extend it, and what happens if rates decrease after you lock.

Once you're under contract, knowing exactly where you stand with your financing can prevent an unexpected rate change from becoming an unexpected closing problem.