Definition:
Lock rate refers to the fixed interest rate on a loan that remains unchanged for a specific duration. It is comparable to securing the rate in place, preventing any upward or downward movement.
Lock rate is the fixed interest rate that a borrower agrees to pay on a loan for a specific period of time. This means that the interest rate will remain unchanged during the lock period, regardless of any fluctuations in market rates. For instance, John is purchasing a house and has been offered a mortgage loan with a 4% interest rate. However, he is concerned about potential future increases in interest rates, which would result in higher monthly payments. To mitigate this risk, John decides to lock in the interest rate at 4% for a duration of 60 days. Consequently, even if interest rates rise during this period, John will still only pay 4% interest on his mortgage loan. The act of locking in a rate provides borrowers with a sense of security and stability, as they have a clear understanding of their monthly payment amount. This is especially crucial for individuals with limited financial resources or those on a tight budget. By locking in a rate, borrowers can avoid the risk of escalating interest rates that could render their loan payments unaffordable.
A lock rate is an agreement between a borrower and a lender to fix the interest rate on a loan for a specific period of time, typically during the loan application process.
Locking your interest rate can protect you from potential rate increases during the loan processing period. It provides certainty and stability in knowing what your monthly mortgage payments will be.
The duration of a lock rate can vary depending on the lender and the loan program. It can range from 30 days to several months.
Some lenders may charge a fee to lock your interest rate, while others may offer it as a free service. It is important to clarify this with your lender before proceeding.
In most cases, once you have locked your interest rate, it cannot be changed. However, some lenders may offer a float-down option that allows you to lower your rate if market conditions improve.
If interest rates drop after you have locked your rate, you will not be able to take advantage of the lower rates unless your lender offers a float-down option. It is advisable to discuss this possibility with your lender before locking your rate.
If interest rates increase after you have locked your rate, you will be protected from the rate hike and will continue to pay the locked rate for the agreed-upon period.
Most lock rate agreements are binding, and cancellation may result in penalties or fees. It is crucial to carefully review the terms and conditions of the lock rate agreement before signing.
In most cases, you can lock your rate at any time during the loan process, as long as your lender allows it. However, it is advisable to lock your rate as early as possible to avoid any potential rate fluctuations.
If your loan does not close within the lock rate period, you may have to pay an extension fee to keep the locked rate. Alternatively, you may have to accept the prevailing interest rate at the time of closing. It is important to discuss this scenario with your lender beforehand.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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