Rate Lock
A rate lock is a lender's commitment to hold a specific interest rate and loan terms for a borrower for a predetermined period, typically 15 to 60 days. This protects the borrower from rate increases while their loan application is being processed.
Example
“Sarah secured a 30-day rate lock at 6.5% interest to protect herself from potential rate increases while her loan application was processed.”
Memory Tip
Think of literally putting a padlock on your interest rate - once locked, the rate can't escape or change during the specified period.
Why It Matters
Rate locks provide borrowers with certainty about their monthly payments and total loan costs, protecting them from market fluctuations during the loan approval process.
Common Misconception
Borrowers often think rate locks are automatically included with loan applications, but they must specifically request them and may pay fees for extended lock periods.
In Practice
A homebuyer gets pre-approved for a mortgage at 6.5% interest and requests a 45-day rate lock to ensure this rate remains available while they shop for homes and complete the purchase process.
Etymology
The term emerged in the 1980s mortgage industry, combining 'rate' (interest rate) with 'lock' (to secure), literally meaning to lock in an interest rate.
Common Misspellings
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