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Particularly in residential real estate finance, a rate lock is a lender’s commitment for a specific period of time to make a mortgage loan at a specified interest rate. The rate lock is an important practice for buyers, who can be sure that borrowing costs do not increase between the time a home purchase goes to contract and when the transaction finally closes. Common rate lock periods are 30 and 60 days. Many lenders will allow the borrower to “buy” an extension of the rate lock period by paying a fee, such as a fraction of a point. The rate lock may be for much longer with a new-construction loan, perhaps 180 days. Usually, the rate lock is for a specific property, but a special rate lock called the lock-and-shop offered by some lenders permits a borrower line up financing before identifying the home. A float down is an option some lenders offer with their rate lock that allows the borrower to reset the interest rate if rates drop, usually one time during the rate lock period. |
