A rate lock is a lender’s promise to “lock” a specified interest rate and a specified number of points for you for a specified period of time while your loan application is processed.
During that time, interest rates may change. But if your interest rate and points are locked in, you should be protected against increases. Conversely, a locked-in rate could also keep you from taking advantage of price decreases.
There are four components to a rate lock:
- Loan program
- Interest rate
- Points
- Length of the lock period
The longer the length of the lock period, the higher the points or the interest rate will be. This is because the longer the lock, the greater the risk for the lender offering that lock.