What is a rate lock?
This lock gives you protection from financial market fluctuations in interest rates by setting the range of pricing available to you. Your final rate, which may not be determined until closing, will reflect the pricing that was available at the time you locked for loans with your specific transaction characteristics and your credit profile. While locking does not guarantee that a specific rate will apply, it does ensure that your loan pricing will not be affected for a set period of time by changes in financial market conditions.
A rate lock is when your lender places a hold on a certain interest rate and number of points for your loan for an agreed on amount of time. Typically, the longer the length of the lock, the higher the points or the interest rate due to the increase risk for the lender offering the lock. At the end of your lock, the lender must disburse funds or your rate lock expires. Some lenders offer free float-downs which allow you to get the lower rate if rates drop while your initial rate has been locked. Keep in mind, though, that you may pay for this option indirectly as part of the initial rate. Lock-and-shop programs let you lock in a rate before finding a home, an especially effective alternative when rates are rising.
