What is "Locking A Rate"?

  • April 06, 2015

A rate lock, also known as a lock-in agreement, is a guarantee from your lender that you will receive a specific interest rate, at a certain price, for an approved period of time. This is typically formalized with a written signed agreement between you and the lender.
Why should you lock your rate? A rate lock protects you, the borrower, from rising interest rates during the course of your mortgage loan process. If you are in the mortgage loan process and rates are low, it is important to discuss with your Loan Officer the perks of locking your rate. Locking your rate could mean that even if rates rise during your loan process, you will still be held accountable for the smaller rate you locked. Each situation is unique and locking a rate is not always advised. For example, locking a rate before you have begun your home search is usually not recommended.
Rate locks can incur fees such as a flat fee, a percentage of the total mortgage amount, or a fee added into the interest rate you lock. The lock period is usually 30, 60, or 90 days. Keep in mind, the longer period of time you lock the rate, usually the higher the fees since you are asking for a greater guarantee from the lender.
Rate locks are first available after the initial loan approval. But how long it will take to find a home and have an offer accepted is no guarantee so consider waiting to lock until a property is found. Lock extensions and changes are available at the lender’s discretion but typically at a cost. Always talk to your mortgage expert to discuss how locking a rate could potentially benefit you and your homebuying experience.

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