What is a rate lock?

Feb 16, 2023


One of the questions we get asked a lot is "What is a rate lock?" In this short article, we will take a brief look at what a rate lock it, and quickly explore its pros and cons.


What is a rate lock?

A mortgage rate lock is an agreement between a borrower and a lender that guarantees a specific interest rate for a certain period of time, typically 30, 45, or 60 days. The rate lock is used to protect the borrower from fluctuations in interest rates while the loan application is being processed, and to give the borrower peace of mind that the interest rate they will pay has been locked in.

In the mortgage process, a rate lock is typically initiated after the borrower has applied for a loan and the lender has reviewed their creditworthiness, income, and other factors. Once the borrower has been approved for a loan, they can choose to lock in the interest rate for a specific period of time. The lender will then provide the borrower with a written agreement that outlines the interest rate, the duration of the rate lock, and any other terms and conditions.

There are several pros and cons to using a rate lock in the mortgage process. Below are a few of the key benefits.



Predictable payments:

A rate lock guarantees that the borrower's mortgage payments will not change during the lock period, which can make it easier to budget and plan for future expenses.


Protection from rate increases:

If interest rates rise during the lock period, the borrower is protected and will still receive the lower rate that was locked in.


Peace of mind:

A rate lock can provide peace of mind for the borrower, knowing that they have secured a specific interest rate for their mortgage.


However, there are also some potential downsides to consider:



Higher costs:

Lenders may charge a fee for locking in an interest rate, and the borrower may be required to pay a higher interest rate in order to secure the lock.


Limited flexibility:

Once a rate lock has been initiated, the borrower may not be able to make changes to their loan, such as adjusting the loan amount or changing the loan program.


Lock period expiration:

If the borrower is not able to close on the loan before the rate lock expires, they may need to pay an extension fee or accept a higher interest rate.


Overall, a rate lock can be a useful tool for borrowers who want to protect themselves from interest rate fluctuations during the mortgage process. However, it's important to carefully consider the pros and cons before making a decision, and to work with a reputable lender who can provide guidance and support throughout the process.