Mortgage Rate Lock

Written By
Paul Tracy
Updated August 5, 2020

What is a Mortgage Rate Lock?

A mortgage rate lock is the term in a mortgage contract that stipulates the rate the borrower will pay for the entire duration of the mortgage.

How Does a Mortgage Rate Lock Work?

When a mortgage originator finds a competitive rate for a borrower, the rate is based on current interest rates. If the borrower decides to formally apply for the loan, the originator uses a mortgage rate lock to freeze the interest rate until the borrower has completed the mortgage application and been approved for the mortgage

A mortgage rate lock stipulates that the borrower must repay the mortgage at the locked-in interest rate and that the lender must lend at the locked-in interest rate.

For example, let's assume that John's mortgage has a mortgage rate lock of 3.5%. Under the terms of the mortgage, John has agreed to pay the mortgage at this rate until all the principal and interest has been repaid. Likewise, the lender agrees to charge John exactly 3.5% -- no more and no less -- until the loan is completely paid off.

[If you're ready to buy a home, use our Mortgage Calculator to see what your monthly principal and interest payment will be.]

Why Does a Mortgage Rate Lock Matter?

Prevailing interest rates fluctuate frequently. A mortgage rate lock protects the borrower in the event that interest rates go up. Likewise, a mortgage rate lock protects the lender in the even that interest rates go down.