What is a Rate Lock?

A rate lock is an agreement between a lender and a borrower that establishes a specific interest rate on a new loan for a certain amount of time. This commonly applies to a mortgage interest rate. An interest rate can be guaranteed from the date of the agreement until closing, regardless of whether or not rates in the market fluctuate.

A buyer can benefit from a rate lock because this agreement can protect them from volatile market conditions. A sudden increase in market interest rates, does not affect locked rates. A borrower can submit their loan application knowing what the interest rate will be at closing.

The main drawback to such an agreement is that buyers can also miss out on lower interest rates, should they fall around closing time. In some cases, they may be able to renegotiate the rate with the lender, but they are not required to offer lower rates once they have agreed to freeze the rate at a certain amount.