What does a rate lock mean?
Many borrowers do not want to be surprised at the close of the transaction with a rate which is higher than what was quoted at the beginning of the process. Hence, many borrowers ask that the lender commit or “lock” the initial rate quoted for a period of time sufficient to close the transaction. When a rate is “locked” the lender is being asked to guarantee the price of a commodity, the price of which changes daily (check out the daily changes in the bond market, which is a measure of the price of money on a daily basis). The longer the lock period, the riskier the position of the lender, hence the higher the loan price (points) charged the borrower.
Many borrowers do not want to be surprised at the close of the transaction with a rate which is higher than what was quoted at the beginning of the process. Hence, many borrowers ask that the lender commit or “lock” the initial rate quoted for a period of time sufficient to close the transaction. When a rate is “locked” the lender is being asked to guarantee the price of a commodity, the price of which changes daily. (Check out the daily changes in the bond market, which is a measure of the price of money on a daily basis.) The longer the lock period, the riskier the position of the lender, hence the higher the loan price (points) charged the borrower.
