DEFINITION of 'Mortgage Rate Lock'

An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate.

The lender may charge a lock fee, which the borrower must pay if he or she does not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate.

BREAKING DOWN 'Mortgage Rate Lock'

When a borrower locks in a rate, it should be binding for both the borrower and the lender. However, some borrowers walk away from the agreement if interest rates fall, and unscrupulous lenders have been known to let lock periods expire if interest rates rise under the guise that the borrower could not process the necessary paperwork in time.

A lock deposit requirement indicates that both the borrower and the lender intend to keep the agreement.

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