Definition
A rate lock is a lender\'s guarantee that the interest rate quoted for a mortgage will remain unchanged for a specified period, typically 30 to 60 days, regardless of market fluctuations. This protects borrowers from rising rates while their loan is being processed. Rate locks can be floating (allow one rate adjustment downward if rates fall) or float-down (allow multiple adjustments). If the loan doesn\'t close before the lock expires, the borrower may face higher rates or lock extension fees.
Example
Rate Lock Example
You're offered a 6.5% mortgage rate and lock it for 45 days. During that period, market rates rise to 7%. You still get the 6.5% rate because it was locked. However, if rates drop to 6.25%, you would typically be stuck with 6.5% unless you paid for a float-down option. Rate locks provide peace of mind but require timing the lock period carefully with your closing date.