Mortgage Rate Lock

Mortgage Rate Lock

Mortgage Rate Lock is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. The lender may charge a lock fee, which the borrower must pay if he or she does not lock the interest rate. Alternatively, the lender may charge a marginally higher interest rate to begin with, just in case the borrower chooses not to lock the interest rate.

When a borrower locks in a rate, it should be binding for both the borrower and the lender. However, some borrowers walk away from the agreement if interest rates fall, and unscrupulous lenders have been known to let lock periods expire if interest rates rise under the guise that the borrower could not process the necessary paperwork in time. A lock deposit requirement indicates that both the borrower and the lender intend to keep the agreement.

Mortgage Rate Lock Deposit

Mortgage Rate Lock Deposit is a fee that a lender charges a borrower that allows the borrower to lock in an interest rate for a certain time period with the expectation that the borrower's mortgage will fund within that time period. The longer the lock period, the larger the required lock deposit. The lock deposit is credited to the borrower when the mortgage funds. If the borrower walks away from the lock agreement, he or she loses the lock deposit.

Many lenders do not charge lock deposits as borrowers tend to shy away from them. However, borrowers should recognize that as with all things financial, "there is no free lunch", and a reputable lender that requires a lock deposit may be able to offer a lower interest rate.

Mortgage Rate Lock Float Down

Mortgage Rate Lock Float Down is a mortgage rate lock with the option to reduce the locked interest rate if market interest rates fall during the lock period. A rate lock with a float-down option can provide the borrower with security against an increase during the rate lock period, while the float-down option allows the borrower to take advantage of a fall in interest rates during the lock period.

As with any financial option, float-down options on a rate lock have a theoretical value or cost; therefore, rate locks with a float-down option are more expensive than rate locks without. The option will only be exercised by the mortgagor if interest rates fall.