Lock-In
Definition and meaning of Lock-In in real estate.
A lock-in is a written agreement in which a mortgage lender guarantees to hold a specific interest rate and points for a borrower for a set period while the loan is processed. This protects the home buyer from rising interest rates during the underwriting and closing process.
In more detail
Lenders offer these agreements to give borrowers certainty about their future monthly payments. Interest rates fluctuate daily based on financial market conditions, so locking a rate prevents unexpected increases before closing. These agreements usually come with an expiration date, meaning the loan must close within the specified timeframe to keep the rate.
If the rate expires before closing, the borrower may have to accept the current market rate or pay a fee to extend the agreement.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Rate lock or rate commitment |
| Typical timing | Secured after loan pre-approval and before final underwriting |
| Watch out for | Expiration dates that can cause the rate to rise if closing is delayed |
A home buyer receives a written rate lock-in at six percent from their lender, ensuring that even if national interest rates rise to seven percent before they close, their rate remains six percent.
Frequently asked questions
Does a rate lock-in cost money?
Some lenders offer rate locks for free for short periods, such as 30 days, while others charge an upfront fee or build the cost into a slightly higher interest rate for longer lock periods.
Can I get a lower rate if interest rates fall after I lock in?
Generally, you cannot get the lower rate unless your agreement includes a float-down option. A float-down clause allows you to lower your locked-in rate once if market rates decrease before closing, though this option may require an extra fee.