Definition:
A lock-in rate is a lender’s guarantee that a borrower’s mortgage interest rate won’t change for a set period, usually from loan approval through closing. This protects the borrower from rising interest rates while their loan is being finalized.
Example:
Olivia is buying a home and gets pre-approved for a mortgage at a 6.25% interest rate. Her lender offers to lock in that rate for 45 days. Even if market rates rise before her closing, Olivia’s rate stays at 6.25%.
Explanation:
When borrowers apply for a mortgage, interest rates can change daily based on market conditions. A rate lock, or lock-in rate, freezes the interest rate so it doesn’t increase before closing. The lock period typically ranges from 30 to 60 days, but some lenders offer longer terms for a fee.
The borrower and lender agree on the:
- Interest rate
- Loan terms
- Duration of the rate lock
If the loan doesn’t close before the lock expires, the borrower may need to pay for a rate lock extension or risk accepting a higher market rate.
Some lenders also offer a float-down option, allowing borrowers to get a lower rate if interest rates drop during the lock period.
Locking in a rate is usually done after the loan application is complete but before final approval and closing.
Why is the Lock-In Rate Important in Real Estate Transactions?
Lock-in rates are important because they provide financial certainty during the loan process. For buyers, this means peace of mind knowing their monthly payments won’t suddenly go up. For sellers, it reduces the risk of financing delays or loan rejections caused by rate hikes. Locking a rate helps keep real estate transactions on schedule and budget-friendly.