Rate lock
A rate lock is a lender's commitment to honour a quoted interest rate for a set period while the loan proceeds to closing. Rates move daily; a lock removes that movement from the borrower's risk.
What is actually locked#
The rate, and usually the points and lender fees quoted alongside it.
What is not locked is anything about the property, the appraisal, the title, or the underwriting decision. A lock protects the price of a loan that is still conditional on being approved at all.
Choosing the period#
Locks are typically offered in thirty, forty-five and sixty day terms, with longer periods available at a higher price — expressed either as a slightly worse rate or as a fee.
The temptation is to take the shortest, cheapest lock. The arithmetic usually argues otherwise. The cost difference between a thirty-day and a forty-five-day lock is small. The cost of a lock expiring three days before closing is an extension fee, or repricing at whatever the market is doing that morning.
Set the period against a realistic closing date, and lengthen it if the file has anything in it that tends to take time — self-employment income, a gift, an unusual property type, a short sale on the other side.
Extensions and expiry#
If the lock runs out before funding, two options exist and neither is free.
An extension costs a fee, generally scaled to the number of days.
Repricing puts the loan at current market. If rates have fallen this is fine, occasionally better than the original lock. If they have risen it changes the payment, and on a borrower who qualified narrowly it can change whether the loan still passes underwriting at all.
Float-downs#
Some lenders offer a one-time float-down: if market rates fall by more than a stated margin before closing, the locked rate can be reset lower.
It costs something, either upfront or in the rate. Whether it earns that cost is a judgement about volatility and about how far away closing is — a sixty-day lock in a moving market is a different proposition from a thirty-day lock in a quiet one.
Get it in writing#
A verbal quote is not a lock. The lock should be confirmed in writing with a rate, a point structure and an expiry date on it.
That written confirmation is also what you compare against the Loan Estimate and later the Closing Disclosure. A rate that drifts between those documents without explanation is a conversation worth having before closing rather than at it.