What Does The Term Lock-In Or Rate-Lock Mean On A Mortgage?

What is a Rate-Lock on a Mortgage?

When this term appears on your mortgage loan agreement it means that the interest rate on your loan won’t change during the period between the initial offer and the closing date provided the closing takes place within a specific time frame and no changes are made on the application form in the interim.

Mortgage interest rates change daily and can sometimes even change hourly. If the interest rate on your mortgage is ‘locked-in’ it means that it won’t change as long as closing occurs within a specified time frame and you don’t make any changes on your application. 

Typically rate locks are available for periods of 30, 45, or 60 days, or even longer in some cases. If your interest rate is not locked-in it will be subject to normal mortgage interest rates and can change at any time.


Disadvantages of a Rate-Lock

There can be downsides to a rate lock. For example, it may become expensive to extend a rate lock if a sales transaction is delayed or it may lock you out of taking advantage of a lower interest rate in the event that rates go down after you have received your loan offer.

Sometimes a lender may lock your rate in as part of a Loan Estimate issue. To be sure, check the top of the first page of the Loan Estimate to find out if your mortgage interest rate has been locked in and for how long. If the rate is locked in it can still be changed if any details on your application change such as your credit score, the loan amount, or your verified income.

Some Common Causes Why Your Interest Rate May Change Even Though it has been Locked

– You have decided to change the type of loan you are applying for or to change your down payment amount

– The appraisal on the home you wish to purchase has come in higher or lower than you expected

– Your credit score has changed for example because you missed a payment on a credit card or existing loan, or you have taken out a new loan

– Your lender is unable to document your income, overtime, bonus, or other income

Rate lock policies can vary from lender to lender. To avoid any unwelcome surprises you should ask the following questions in advance:

– What does it mean if I lock in my rate today?

– What is the rate lock time frame provided on this loan estimate?

– Are there shorter or longer rate locks available and what is the cost?

– What happens if closing takes longer and my rate lock has expired?

– If my rate is locked-in, under what conditions can it still be changed?

– What happens if my rate is locked in but interest rates fall?

Before you decide to take advantage of a rate lock make sure that the time frame of the agreed rate lock will be long to cover you until you can close.  If you are at all concerned about the rate lock being too short you should immediately apply for a longer period.