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.

RELATED TERMS
  1. Loan Lock

    The securing of a specified interest rate on a mortgage that ...
  2. Lock Period

    A number of days, often 30 or 60, during which the interest rate ...
  3. Mortgage Rate Lock Float Down

    A mortgage rate lock with the option to reduce the locked interest ...
  4. Locked Market

    A market in which a stock's bid and ask prices are identical. ...
  5. Treasury Lock

    A hedging tool used to manage interest-rate risk by effectively ...
  6. Borrowing Base

    The amount of money a lender will loan to a company based on ...
Related Articles
  1. Personal Finance

    Got a Good Mortgage Rate? Lock It Up!

    Rising rates mean rising profits for lenders, providing incentive to increase rates whenever possible.
  2. Personal Finance

    How to Shop For Mortgage Rates

    A step-by-step guide to finding and locking in the best rate for a mortgage.
  3. Personal Finance

    What Does a Lender Do?

    A lender provides funds to another with the expectation those funds will be repaid with interest.
  4. Personal Finance

    How Do Mortgage Lenders Get Paid and Make Money?

    When homebuyers educate themselves on how mortgage lenders get paid and make money, they are more likely to save thousands of dollars on their mortgages.
  5. Investing

    Levels Of Security For Investments

    The simple analogy of different kinds of bicycle locks can teach us a lot about investments.
  6. Personal Finance

    What Are Mortgage Lenders Allowed To Ask Borrowers?

    Seemingly intrusive or irrelevant questions are actually legal for lenders to ask of mortgage applicants.
  7. Personal Finance

    How Regulations Protect Reverse Mortgage Borrowers

    They're complex animals, which is why there are government guidelines in place to protect borrowers.
  8. Personal Finance

    Tips for Choosing the Best Online Mortgage Lender

    Finding the right online mortgage lender can be a tall task. Here's some help on how to avoid wasting your time.
  9. Personal Finance

    Trended Credit Data Could Increase Interest Rates for Borrowers (FNMA, EFX)

    Mortgage lenders will soon be required to use trended credit data to qualify borrowers. As a result, many borrowers could have to take higher interest rates.
  10. Retirement

    When Are Mortgage Lenders Better Than Banks?

    Individuals seeking a mortgage loan should consider factors or circumstances that may make a mortgage lender a better choice than a traditional bank.
RELATED FAQS
  1. Does inflation favor lenders or borrowers?

    Find out under what circumstances inflation benefits borrowers more than lenders and in which situations inflation can be ... Read Answer >>
  2. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ... Read Answer >>
  3. When Is Mortgage Insurance Typically Required?

    Learn about the situations in which borrowers may be required to buy private mortgage insurance, and discover who this insurance ... Read Answer >>
  4. What is the most important "C" in the Five Cs of Credit?

    Learn how the five C's of credit affect new credit application decisions, and understand how a lender analyzes each aspect ... Read Answer >>
Trading Center