Rate-Lock Strategies: Explained!

The strategy of trying to “time rates” and when to lock is similar to the strategy of trying to time the price of a stock. Some of the smartest people in the world have a hard time consistently judging a stock’s price, and the same is true for interest rates. In stocks, half of the smartest people on Wall Street get it wrong, and half of them get it right. That what makes the market work. Mortgage interest rates are controlled by mortgage-backed security bonds, and are closely correlated with the U.S. 10-year Treasury. Typically, the U.S. 10-year Treasury bond yield moves down as there is economic turbulence, either nationally or globally...


When there is economic turbulence, investors flock to the safety of U.S. Treasury debt because it is the safest asset in the world, and they are protecting their investments with a safe bet in times of turbulence: essentially, money flows out of the stock market and into the U.S. Treasury debt. In times of economic prosperity, the reverse is true: Treasury yields typically go up, which causes rates to go up. For instance, if a better-than-expected U.S. jobs report is released, confidence in the world’s largest economy goes up, U.S. employers hire more, stocks rally (good for global trade), and the rates go up; when investors are more confident to take riskier investments, it’s bad news for mortgage rates.


Some Common Lock Tactics:


Regarding trying to find the right day to lock a loan, there are strategies that do pay off. For example, depending on the lender, it oftentimes does not make sense to lock on a Friday because the markets don’t move on Saturday and Sunday. If you lock on a Sunday, you get an extra two days on the lock (which turns a 10-day lock into a longer locked loan). The shorter the lock, typically, the better the rate. A 60-day rate lock is always going to come with a slightly higher rate than a 30-day, a 30-day is always going to come with a slightly higher rate than a 15-day, and a 10-day lock is going to come with a slightly lower rate than a 15-day; is is important to understand what your options are when determining when to lock! 


Typically, it makes sense to lock whenever you hit a place in the market where you would accept that rate. Determine that it makes sense for you to act on this rate, as opposed to being happy to refinance, but waiting for another rate drop. This is never a good strategy, because typically, many lenders have a “float-down policy”: this means you can lock today’s rates, protected if they go up. However, if they fall throughout the process, you can do a one-time float-down policy, and typically, they have to fall by more than an eighth of a percent to be eligible for a float-down - that doesn’t happen often. You’re much better off locking in on a rate you’d be happy with, regardless of future drops. If you get a float-down benefit, then so be it!


These are just a couple of tips to consider when determining when to lock a rate, but as always, consulting a loan officer could never hurt. To check rates any time, feel free to check out our live quote generator!


Jason Vondrak

Company President

Prospect Financial Group

948 Garnet Avenue

San Diego, CA 92109

NMLS: 349089 | BRE: 01837707

Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.

"I've had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership."