Legal Definitions - lock rate

A lock rate, also known as an interest rate lock, is a commitment from a lender to hold a specific interest rate for a loan for a predetermined period. This agreement protects a borrower from potential increases in market interest rates that might occur between the time they apply for a loan and the actual closing or funding of that loan. During the lock period, the agreed-upon rate remains fixed, providing certainty for the borrower's future payments.

• Example 1: Home Mortgage Application

  A couple is in the process of buying their first home. After receiving loan approval, their lender offers them an interest rate of 6.25%. Given that the closing date is still 45 days away, and they are concerned about potential market volatility, they request a 60-day lock rate on the 6.25%. This means that even if general interest rates for mortgages rise to 6.75% before their closing, their loan will still be funded at the guaranteed 6.25%, protecting them from a higher monthly payment.

• Example 2: Business Expansion Loan

  A small manufacturing company secures a loan to purchase new machinery and expand its production capacity. The lender quotes an interest rate of 7.5%. However, the machinery won't be delivered and installed for another three months, delaying the final disbursement of the loan funds. To ensure their financing costs remain predictable, the business owner asks for a 90-day lock rate. This guarantees that the company will pay 7.5% interest on the loan, regardless of any upward shifts in commercial lending rates over the next quarter, allowing for stable financial forecasting.

• Example 3: Refinancing a Car Loan

  An individual decides to refinance their existing car loan to take advantage of lower interest rates. They find a new lender offering a competitive rate of 4.0%. The refinancing process, including paperwork and title transfers, is expected to take about two weeks. To ensure they secure this favorable 4.0% rate and prevent it from increasing before the new loan is finalized, they opt for a 30-day lock rate. This commitment ensures that their new car loan will carry the 4.0% interest rate, even if general auto loan rates were to rise during that period.