Locking a mortgage rate isn't a casual handshake—it's a binding commitment on the lender's side, and walking away can trigger a breakage fee. Understanding how these work protects you from surprise costs if circumstances change.
What a rate-lock breakage fee is
When you lock a rate, the lender typically hedges that commitment in the secondary market—buying protection against rate movements so they can honor your locked terms even if rates climb before closing. If you cancel the loan after the lock, the lender may be left holding that hedge at a loss. A rate-lock breakage or cancellation fee reimburses the lender for those secondary-market losses. These figures are illustrative; rates and products are subject to change and this is not a commitment to lend.
Not every lender charges breakage fees, and not every cancellation triggers one. The fee usually applies when you abandon a locked loan to refinance elsewhere, decide not to proceed, or otherwise prevent the lender from delivering the loan they hedged. It's less common on purchase transactions that fall through due to inspection or appraisal—those are standard contingencies—but read your lock agreement carefully.
How the fee is calculated
Breakage fees are typically tied to actual hedge losses, not arbitrary penalties. A lender might calculate the difference between your locked rate and the rate at which they can unwind the hedge, multiply that spread by your loan amount, and charge you the resulting cost. For illustration: if you locked a 500,000 loan at 6.25 percent and rates fell to 5.75 percent by the time you cancel, the lender's hedge may have lost value equivalent to 0.50 percent of the loan amount—potentially 2,500. Some agreements cap the fee or express it as a percentage; others pass through the full market loss.
You'll also see variation in timing: some lenders waive breakage fees if you cancel within the first few days of the lock (a short recission window), while others assess the fee immediately upon lock.
Disclosure requirements and your rights
Federal law doesn't mandate a standard breakage-fee disclosure, so transparency depends on the lender and the lock agreement you sign. Reputable brokerages disclose the possibility of a breakage fee upfront in the lock confirmation and explain the calculation method. Before you lock, ask whether a cancellation fee applies, how it's computed, and under what circumstances it's waived. Get the answer in writing.
If you're shopping lenders after locking with one, factor any potential breakage fee into the comparison. A slightly lower rate elsewhere may not save you money if you owe a hedge-loss fee on the abandoned lock.
The Alliance take
Rate locks are serious commitments with real costs behind them. If you're uncertain about proceeding, delay the lock until you're ready—most purchase contracts allow a reasonable window. If you do need to cancel, communicate early; some lenders negotiate or waive fees when circumstances are beyond your control. Read every lock agreement before signing, and ask questions up front. Ready to lock with clarity and no surprises? Start an application and we'll walk you through every term before you commit.