What is an interest rate lock?

An interest rate lock is a guarantee of a specific interest rate for a specified period of time. This is particularly beneficial for borrowers during the mortgage process, as it ensures that the interest rate on their loan will not increase before they close on their property. When interest rates are anticipated to rise, locking in a rate can protect borrowers from potential increases, providing them with financial certainty and stability in their mortgage payments.

This financial tool is typically utilized by lenders and borrowers when navigating the mortgage application process. The lock is often effective for a definite duration, which can range from a few days to several months, depending on the lender's policies and the market conditions.

Understanding the mechanics of an interest rate lock is essential for borrowers as it can directly impact their overall loan costs and budgeting for the home purchase. Such awareness allows them to make informed decisions about whether to lock in an interest rate based on market trends and their personal circumstances.