A rate lock on a mortgage refers to an agreement that is made between a lender and a borrower that allows for the borrower to secure the interest rate (at the current market interest rate) on a mortgage over a time period that is specified. If a borrower does not agree to a rate lock, the lender may require that the borrower pay a lock fee. In other cases, the lender may decide to charge a higher rate of interest in the mindset that the borrower may not lock their mortgage interest rate.
At the time that a borrower secures their rate lock for their mortgage, it is binding for the lender and the borrower. The interest rate will be secured from the time of the offer to the time that the mortgage is closed. The interest rate will remain consistent, even if the market fluctuates, unless there are changes to the mortgage application during the closing of the mortgage. If there are changes to the application, like a change of the borrower’s credit score or income, the mortgage amount may change, which will in turn effect the overall interest rate. Also, if the borrower decides to make changes to the type of mortgage they are applying for or if their home appraisal changes, their interest rate will change.
The interest rates for mortgages can change on a daily and even hourly basis. If a borrower locks their interest rate, they will not experience the changes and fluctuations in the market. Rate locks are generally set for a specific time frame and can last anywhere from 30 days to longer than 60 days. If a borrower decides to lock their interest rate, they should make sure to read over their agreement with their lender to make sure they have enough time to close their mortgage before their rate lock agreement expires.
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