Question 1

What is a rate lock in real estate?

Accepted Answer

A rate lock is a lender’s commitment to hold a specific interest rate and points for a borrower for a specified period. The rate lock: guarantees the borrower’s interest rate (protecting against rate increases during the closing process), has a defined duration (typically 30, 45, or 60 days), and may include a rate lock fee (some lenders charge a fee; others include it in the closing costs). If the borrower does not close within the lock period: the rate may increase, and the borrower may need to extend the lock (for an additional fee) or accept the current market rate.

Question 2

When should a borrower lock their rate?

Accepted Answer

Timing: after the loan application is submitted (some lenders allow locking at application; others require pre-approval), when the borrower is comfortable with the rate (if rates are rising, lock early; if rates are falling, wait), and with enough time to close (the lock period must be long enough to complete the closing process; add a buffer for potential delays). Best practice: discuss rate lock strategy with the lender and monitor market conditions. Floating the rate (not locking) is riskier but may result in a lower rate if rates decline.

Question 3

What happens if rates drop after locking?

Accepted Answer

Rate decrease: some lenders offer a "float-down" option (the borrower can take advantage of a rate decrease after locking; this option may have an additional cost), some lock agreements include a one-time float-down (the borrower can renegotiate the rate if it drops by a specified amount), and without a float-down: the borrower is locked at the agreed rate (even if market rates decrease). The borrower should ask about float-down options before locking.

Rate Lock

Rate Locks in Real Estate

What It Does

Timing

Float-Down

Related Terms

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