Rate Commitment
Definition and meaning of Rate Commitment in real estate.
A rate commitment is a written agreement in which a mortgage lender promises to hold a specific interest rate for a borrower for a set period of time.
In more detail
This agreement protects home buyers from interest rate increases while their loan is being processed and finalized. The commitment period typically ranges from 30 to 90 days, though longer periods are sometimes available for a fee. If market interest rates rise during this timeframe, the lender must still honor the lower committed rate. Borrowers must close their loan before the commitment expires to secure the agreed rate.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Rate lock agreement |
| Typical timing | 30 to 90 days |
| Required by | Borrowers seeking rate protection |
A home buyer secures a 45-day rate commitment at six percent, ensuring their interest rate remains locked at six percent even if market rates increase to six and a half percent before their closing date.
Frequently asked questions
What happens if a rate commitment expires before the loan closes?
If the commitment expires, the buyer must typically accept the current market rate, pay a fee to extend the commitment, or renegotiate terms with the lender.
Is there a fee for a rate commitment?
Lenders may offer short-term commitments for free, but longer periods or specific float-down options that allow you to capture lower rates often require an upfront fee.